Housing Market Forecast: Zillow Doubles as Home Prices Drop

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Where will housing prices head amid the upcoming “housing recession”? Getty Images

The housing market hasn’t seen a climate like this in a long time, but exactly when is a big question. Counting on existing home sales, it hasn’t been this bad since 2010, at the height of the Great Recession, when a 15% collapse in September sent transactions plummeting to a 13-year low, the “deep freeze” that Zillow warned about. Again in the spring. Other economists, such as Mark Fleming of First American and Jeseo Park of Bank of America Research, see conditions reminiscent of the “housing recession” of the 1980s. Morgan Stanley took the market temperature earlier this week and saw more pain for homebuyers ahead: a rise of up to 5% in home prices nationwide, a reversal of its previous call for lower prices amid rising mortgage rates. Zillow takes the opposite direction.

After announcing in February that U.S. home prices had bottomed, economists at Zillow have been raising their home price forecasts every month through August. At that point, they expect home prices to rise 6.5% over the next 12 months. But last month, they issued a downward revision. And this month they did it again.

Zillow Economists Expected this week That house prices will rise by 2.1% between September 2023 and September 2024. This compares to their forecast last month that house prices would rise by 4.9% between August 2023 and August 2024.

“Zillow’s forecast for the nation’s typical home values ​​was revised downward this month due to an uncharacteristic month-over-month decline in September and mortgage rates rising higher than ever,” they wrote this week.

Economists at Zillow have found the possibility that a flexible labor market will mean a longer-than-expected period of high interest rates. With interest rates holding steady, the housing market has lost some steam.

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“Higher mortgage rates are impacting new listings as ‘rate-constrained’ homeowners largely choose to stick with the relatively low monthly payment associated with their existing homes,” Zillow economists wrote.

They now expect national home prices to rise 3.3% in 2023, down from the 4.3% they forecast last month.

“While many home shoppers are priced out or limited in what they can afford, there are enough active buyers to keep competitive pressure on the few homes available for sale,” they noted.

For its part, Morgan Stanley recently made a more dramatic change to its forecasts for 2023. While its analysts previously expected house prices to fall this year, they now say prices could rise by up to 5%. The reversal, reported in a research note earlier this week, comes as mortgage rates continue to rise.

The 30-year mortgage rate hits 8% this week according to Daily Mortgage News. Rates haven’t been this high in decades.

“They are likely to stay around that level… in the last few months of the year, especially if the Fed raises rates again before the end of the year,” said Mark Fleming, chief economist at Fortune 500 financial services firm First American. “General”. , Tell luck this week.

The Fed is keeping open the possibility of raising interest rates again. Recently, Andrew Levin, a former senior Fed adviser who is now a professor at Dartmouth College, told Bloomberg: “There is a very big risk that they will need to do more.”

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