Home prices could fall in these housing markets, says CoreLogic
The housing market still hasn’t let up nearly two years into the home price boom. Bidding wars are near record levels. Inventory remains at a four-decade low. And home price growth—up 19% over the past 12 months—is hovering around an all-time high.
But that housing boom now has some in the industry fearing an overheating. If things stay this hot for too long, it could lead to a correction. After all, simple economics dictates that home price growth can’t outrun income growth forever.
Nationally, the latest forecast models—which all still predict continued home price growth in 2022—don’t foresee a price correction coming anytime soon. However, the latest report by CoreLogic rates a handful of regional markets as having a “moderate” to “very high” chance of seeing a home price decline over the coming 12 months.
Data scientists at CoreLogic, a real estate research firm ranked No. 952 on the Fortune 1000, analyzed 392 metropolitan statistical areas to rate the markets with the highest likelihood of a housing bubble burst. Over the past two months, CoreLogic has rated these following markets as having the highest chance of a price correction: Lake Havasu City, Ariz. (very high chance); Worcester, Mass. (very high chance); Prescott, Ariz. (high chance); Kalamazoo, Mich. (high chance); Hartford, Conn. (moderate chance); Bremerton, Wash. (moderate chance); and Bridgeport, Conn. (moderate chance). If a market has a “very high” chance, it means CoreLogic gives that market an over 75% likelihood of a price correction. Meanwhile, a “high” chance means a 50% to 75% likelihood of a price correction, and a “moderate” chance means a 25% to 50% likelihood.
Why are some markets finally at risk of seeing a price decline? A lot of it boils down to mortgage rates. Over the past two months, mortgage rates have begun to soar as Wall Street prices in future rate hikes by the inflation-weary Federal Reserve. On Friday, the average 30-year fixed mortgage rate climbed to 3.92%. That’s up from 3.11% in mid-December. That is already pricing some buyers out of the market, and increasing the possibility of a price correction in overheated markets like Lake Havasu City.
“Buyers have continued to bid prices up for the limited supply on the market. However, the rise in mortgage rates since January further eroded buyer affordability and is expected to slow price gains in coming months,” wrote Frank Nothaft, chief economist at CoreLogic, in the company’s latest report.
While CoreLogic says housing markets like Bridgeport, Conn. (which includes all of Fairfield County), and Prescott, Ariz., could see a price correction this year, the real estate firm is still forecasting solid national price growth. Between January 2022 and January 2023, CoreLogic predicts U.S. home prices will rise another 3.8%.
But not all housing experts agree. Look no further than home listing juggernaut Zillow, which is predicting that the year-over-year rate of home price growth will rise to a record 21.6% by May, and will be 17.3% come January 2023.
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