124 housing markets are facing a price correction

Back in the early 1980s, Fed Chair Paul Volcker made the bold decision to do whatever it took to quell the inflationary run that began in the ’70s—even if it came down to great cost to the economy.

Volcker finally achieved his goal but only after rising mortgage rates—which rose to 18% in 1981—created a downturn in the housing market so sharp that it led to the economy to an economy. However, while home sales and building levels both cratered in 1981national home prices actually remained stable throughout the downturn.

Fast forward to 2023, and the US housing market is once again in the midst of a reduced housing while the Fed works to tame another inflationary run.

Across the country, home sales fell as buyers and sellers alike turned off a large increase in mortgage rates. Last week, mortgage purchase applications decreased by a staggering 41% year-on-year basis.

while housing transactions in 2022 crashed in 1981-like fashion, the story of the house price segment is not the same. Until November, US home prices measured at seasonally adjusted Case-Shiller National Home Price Index has fallen by almost 3% since the peak in June 2022.

said, the others the region’s housing markets saw something very similar to the 1981 housing downturn.

Among the 400 largest housing markets in the country tracked by Zillow, 276 markets saw local home prices fall from their respective 2022 peaks. That includes 32 markets, like Boise and Renowhere home prices are down more than 5% from their 2022 peak.

Meanwhile, 124 major housing markets are still at their peak. While rising mortgage rates saw housing transaction volumes plummet in some 124 markets, home prices in those areas remained stable. Simply put: Those 124 housing markets are facing a housing downturn (so far) similar to how those markets weathered the 1981 housing collapse.

To better understand why the downturn in the housing market remains bifurcated, let’s take a closer look at the data.

Through January, most of the sharp home price correction occurred in markets located in the Pacific West or Southwest. One reason for affordability: Many housing markets in the Western Visayas have already lost affordability-wise, and rising mortgage rates are only pushing the markets over the edge. There is another reason: Higher proportion of houses inside overheated housing markets in the West owned by iBuyers and home builders. Unlike primary home owners, investors and builders are more likely to inflate prices when sales stop.

Among the 124 major housing markets that faced a house price correction in 1981 fashion (i.e. a crash in transactions but no decline in house prices), they were mainly concentrated in Northeast, Midwest, and Southeast. That includes major markets like Des Moines, Little Rock, Miami, Philadelphia, and Hilton Head Island, SC

Why did these 124 major markets (see areas colored blue on the map above) slide into correction mode? Well, many of these areas, including markets like Des Moines and Philadelphia, haven’t seen local home prices rise over time. the Pandemic Housing Boom. Being closely aligned with local fundamentals means that markets like Des Moines and Philadelphia are better positioned to absorb last year. mortgage rate shock.

while the continued decline in housing not an exact replica of the 1981 housing bust, it also pales in comparison to the 2000s housing crash, which saw a 26% peak-to-trough decline in home prices between 2007 and 2012.

“It’s natural to compare the current housing boom to the mid-00s housing bubble. The bubble and subsequent bust are part of our collective memories. ,” wrote the housing analyst Bill McBride on his economics blog Calculated Risk back in March 2022. “However, there are significant differences. First, lending has been reasonably stable during the current boom, while in the mid-00s, standards in underwriting almost nothing … and demographics are more favorable now than in the mid-00s.”

History never repeats itself, but it always rhymes. When it comes to the overall story of 2022 and 2023, it’s more like 1981 than 2008.

“A more similar period today was the late ’70s and early ’80s. Home prices were rising rapidly. The demographics were very favorable for home buying as the baby boomers moved into the first opportunity homebuying age group (similar to today’s millennials). And inflation rose from already high levels due to the second oil embargo in 1979, followed by the Iran-Iraq war in 1980, which drove up costs,” writes McBride in Calculated Risk. “In 1979, the Volcker Fed responded by raising rates, and coupled with inflation, this pushed mortgage rates up sharply.

As mortgage rates rise in 2022, it becomes clear to McBride that the ongoing housing downturn will deviate slightly from the 1981 recession and a decline in home prices is on the table. Heading forward, McBride expects national home prices to decline by around 10% from peak-to-trough. If he’s right, this will mark a mild correction—not a full-blown crash like 2008.

“Despite the current dynamics similar to the 1979 peakhouse prices more than the basic line than in 1979,” wrote McBride in October. “Since national house prices have risen very rapidly during the pandemic – more than 40% – it is likely that some of the usual “stickiness” will not apply. I think the most likely scenario today is nominal house prices that have declined 10% or more from the peak.”

This data raises an obvious question: Will these 124 housing markets avoid any future home price declines?

It’s hard to say.

During the last cycle, Phoenix topped in June 2006, or about six months before Miami. So it is possible for today’s strong markets to follow in the footsteps of their declining peers.

Then again, this is not the 2008-era story. What happens next will depend on how long mortgage rates stay high and whether or not the economy avoids a recession. (You can find home price forecasts at Moody’s and Zillow HERE).

Want to stay updated on the housing market? Follow me Twitter on @NewsLambert.

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