Home prices are falling.
They’re not going up, they’re falling—crazy right? Who would’ve thought? (We knew.) What with inflation and recession?
Let’s talk about this.
I’ve got great stuff to share with you. There's some good research, and a great interactive map (that you’ll have to check out on Fortune’s website), and it shows you what's supposedly going to happen, and what areas will be affected more than others.
This article is called Falling home prices? This interactive map shows the statistical odds of it occurring in your local housing market and it’s by Fortune magazine, written by Lance Lambert. It is a great article.
Here’s what it says: “[The home price decline is] already causing layoffs in sectors like homebuilding and mortgage lending. Soon, we’ll see cutbacks in durable production like window production and cutbacks in commodities like lumber and steel. As economic contractions spread throughout the economy, it should help chip away at inflation.” (Source: Fortune)
That's important because what we've heard this whole time is that the Fed purposefully rose the rate, just like they did in the 80s, to kill inflation. The thing that they didn’t tell you, though, is that their main target (back then) was real estate.
We instantly saw that when the rates were raised, the mortgage rates (that are tied to the 10-year Treasury bond) went up. Now, interest rates, you know, they are where they are.
According to Fortune, “The real story, industry insiders say, is one of sharp decelerating price growth. By this time next year, McBride predicts home prices could be up 0% on a year-over-year basis. (Freddie Mac disagrees and says national house prices are set to rise another 4.4%.)”
If you don’t know who Bill McBride is, he is the author of the blog Calculated Risk. Back in 2008, he was the one that called the housing crash WAY before it happened. And this is what he is saying this time around, even if we go with 0% growth year-over-year, that is still not a crash.
I want you to pay attention to the data because I’m hearing left and right that a lot of people are saying “a crash is coming,” “wait for unemployment,” wait for foreclosures,” etc. They are really anticipating and speculating about what is going to happen without having it backed up with data.
Now, some of these stats are a bit lagging, of course, but it is still facts, nonetheless. Not speculation.
“Regardless of where national house prices go next, it won’t be even across the nation. Already, markets like Boise and Phoenix are contracting significantly faster than the rest of the nation,” Fortune continues. Now, we’ve talked about this since the very beginning: real estate is regional.
Fortune magazine reached out to CoreLogic, and they gave the stats and some analysis and forecasts based on the stats, and they made this amazing interactive map. You can check it out over at Fortune’s website.
Here are the factors that they considered in their data analysis:
CoreLogic then grouped local housing markets into five categories according to the likelihood of home prices dropping in the next 12 months in those particular markets. Categories are:
The west coast is really leading the way with very high chances of home prices falling. There are some areas, like Ventura County and the Malibu area, that are in the ‘low’ category. The northern east coast also has a lot of local housing markets in the red (‘high’ and ‘very high’ categories).
Boise, ID, Lake Havasu, and Prescott Valley are (as expected) under the ‘very high’ category.
But, surprisingly, Phoenix, AZ, and Austin, TX have very low chances of home price decreases. These two areas are among those markets widely thought to face declines very soon. The only one that everyone seems to agree with is Boise, Idaho. It's very high.
This is why. According to Fortune, “Between May 2022 and May 2023, CoreLogic predicts U.S. home prices are poised to rise 5%. That’s nationally. Regionally, it’ll vary—a lot.” That’s a rise, guys, not a crash.
I’m just sharing the data with you. You don’t have to agree with the data, you definitely don’t have to agree with me, but I’m going with the data because I dive into the data daily, and I learned that as a historian and in law school.
“While the real estate research firm pinpoints some bubbly markets like Boise as primed for a home price dip, most of the markets it deems as having ‘very high’ to ‘high’ odds of a home price correction are high-priced coastal markets. Some of these markets, like San Francisco and New York City, are vulnerable because of the population declines they experienced during the pandemic. Others simply have strained affordability.
“A growing chorus of housing economists believe we could be headed for some regional home price declines. But that doesn’t mean it’s a housing bust. Unlike in 2008, this time around homeowners are in better financial shape and we’ve outlawed the worst financial products from the 2000s. That coupled with tighter supply is why many housing economists don’t think ‘overvaluation’ will lead to another crash.” (Source: Fortune)
Things could change tomorrow. We could blow up, and now we are having a housing problem. But right now, there is no bust. There is no crash, unlike in 2008.
We go full circle to McBride because he’s the guy who called it last time with the research he did. According to Fortune, “McBride thinks a housing market like Boise—where home prices soared nearly 60% during the pandemic—could see a home price decline of around 5% to 10% over the coming year. Not only have record Boise house prices priced out many locals, but flatlining tech stocks could put cold water on the market’s exuberance. That said, in McBride’s eyes that’s hardly a dire scenario.”
This is what McBride says: “So what? You’re still up 50%.” And, I mean, who could argue with that?
I know there are a lot of questions about real estate, and I will keep posting videos on the data that I see, so you can check out my YouTube channel. But right now, everything is just pointing to a more neutral market throughout the US. Some areas will suffer, and most areas may not.
Pay attention to the facts, and keep your finger on the pulse, because things can change quickly. However, as of the moment, there’s no need to freak out. Keep moving forward, and stop being so pessimistic about everything—look for opportunities instead. Have a great day!
