Across the country, builders and agents alike are watching the U.S. housing market—which got priced to 3% mortgage rates—work toward equilibrium in the face of 7% mortgage rates.
Unlike the stock market, which corrects through price shifts, housing corrections are historically felt the most acutely through declines in housing activity. That, of course, is why spiked mortgage rates are already translating into sharp declines in both existing and new-home sales.
That said, it’s increasingly clear that this housing correction won’t be felt through just a decline in housing activity. The housing correction is also putting downward pressure on home prices, with many markets having already slipped into a home price correction.
To better understand where home prices might be headed, Fortune reached out to CoreLogic to see if the firm would provide us with its updated October assessment of the nation’s largest regional housing markets. To determine the likelihood of regional home prices dropping, CoreLogic assessed factors like income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates, and inventory levels. Then CoreLogic put regional housing markets into one of five categories, grouped by the likelihood that home prices in that particular market will fall between August 2022 and August 2023. Here are the groupings the real estate research firm used for the October analysis:
- Very high: Over 70% chance of a price dip
- High: 50%–70% chance
- Medium: 40%–50% chance
- Low: 20%–40% chance
- Very low: 0%–20% chance
Between August 2022 and August 2023, CoreLogic predicts national home prices are poised to rise another 3.2%. That said, CoreLogic's forecast model estimates a huge swath of the country is at risk of falling home prices.
Of the 392 regional housing markets that CoreLogic measured, zero markets currently have "very low" odds of falling home prices over the coming year. Another 18 housing markets are in the "low" group and 39 markets are in the "medium" group. Meanwhile, CoreLogic put 97 markets in the "high" camp and 238 markets in the "very high" odds camp.
This October assessment finds 335 markets have a greater than 50% chance of notching a negative year-over-year reading (i.e., markets in either the "high" or "very high" risk groups) over the next 12 months. In August, only 125 markets had a greater than 50% chance of falling home prices. In July, there were 98 markets at risk. In June, 45 markets were at risk. In May, just 26 markets fell into those "high" or "very high" risk camps.
The trajectory is clear: Falling home prices are getting more and more likely.
There are two main reasons CoreLogic's outlook continues to go lower. 1. Housing data, which feeds into the forecast model, continues to weaken in the face of deteriorating housing affordability. 2. Home prices are already falling in many markets.
"With some markets already posting month-to-month declines since this year's peak in prices, probability of price decline on a year-over-year basis intensified as well in August," Selma Hepp, deputy chief economist at CoreLogic, tells Fortune.
Where are home prices falling the fastest? The biggest declines are occurring in the West Coast, Southwest, and Mountain West markets.
"Markets already posting monthly declines are generally concentrated in the West and Mountain West, particularly in Washington, Idaho, California, Utah, Colorado, Oregon, Montana, Nevada, and Arizona, and have seen relatively larger run-up in prices since the onset of pandemic," Hepp says.
The sharpest home price corrections can be found in one of two groups. The first group includes high-cost tech hubs like Seattle and San Jose. Not only are those high-end housing markets more rate sensitive, but so are their tech sectors. The second groups are frothy housing markets like Austin, Boise, and Phoenix. Those frothy markets, which saw home values go far beyond what local incomes can support during the Pandemic Housing Boom, reach levels that local incomes are struggling to support.
Hungry for more housing data? Follow me on Twitter at @NewsLambert.
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