America’s home prices could plunge as much as 20% due to the sharp rise in mortgage rates in 2022, which are drastically increasing home ownership costs and “boost the odds of a severe house price correction,” according to research from the Federal Reserve Bank of Dallas.
?Enrique Martinez-Garcia, an economist with the Dallas Fed, stated in a study on Tuesday that it is undoubtedly a “pessimistic scenario” to think that the value of the country’s homes could drop by as much as one-fifth. However, other economists have expressed similar concerns, with Pantheon Macroeconomics Chief Economist Ian Shepherdson foreseeing a comparable decline in property values early this year.
A steep decline in housing prices would likely have a ripple effect on the broader economy as well as further undermine the real estate sector. If home prices dropped 15% to 20%, under Martínez-García’s pessimistic scenario, personal consumption could drop by 0.5 to 0.7 a percentage point, he estimated.
?For now, housing prices are still rising. The national median price for an existing single-family home rose 8.6% in the third quarter, reaching $398,500, according to the National Association of Realtors. Still, the rate of price increases is slowing, given that home prices jumped 14.2% in the second quarter, the industry group said earlier this month.
?More buyers are getting priced out of the market because of the combination of rising home prices and higher mortgage rates. The median income now required to buy a typical home is $88,300, or about $40,000 more than was needed prior to the pandemic in 2019, NAR said.
?The market Is particularly tough at the moment for first-time buyers. Because of the spike in mortgage rates, a buyer of a typical starter home worth about $340,000 who put 10% down would face a monthly mortgage payment of $1,808 — about $600 more than a year ago, according to the group’s calculations.
?NAR Chief Economist Lawrence Yun predicted earlier this month that home sales will slip by 7% next year as more people are priced out of the market, but said he expects the median home price will rise 1%. One reason he doesn’t expect prices to slide. Inventory remains tight, meaning that buyers are still competing for desirable properties.
