Poll: U.S. home prices to fall 4.5% in 2023 despite higher rates

Applied Energetics

02/03/2023 12:05

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              cpurl://apps.cp./cms/?pageId=house-poll poll data
    

  
    By Indradip Ghosh and Prerana Bhat
       BENGALURU, March 2 (Reuters) - U.S. home prices are
forecast to decline modestly this year and by less than
previously thought as demand has declined only slightly despite
expectations that interest rates have further to rise, according
to property analysts polled by Reuters.
    Normally interest rate-sensitive home prices have only
fallen about 6% from their recent peak, although the Federal
Reserve is expected to deliver at least two more rate hikes,
having already raised its key interest rate by 450 basis points
from near-zero in just a year.
    The decline has hardly dented a market, following a surge of
 more than 45% in average house prices since 2020 as buyers
rushed in to avoid missing out, while people who could not
afford to buy have been left paying higher rents.
    Mortgage rates had been broadly declining since October but
resumed their ascent in recent weeks on expectations the Fed
will keep its federal funds rate higher for longer. But the
latest housing data points to renewed strength in activity.
     The poll of 29 analysts, conducted between Feb. 15 and
March 2, forecast average home prices based on the Case/Shiller
index, which rose around 6% last year, were forecast to decline
4.5% in 2023, followed by no increase in 2024. That is slightly
less than the 5.6% fall predicted three months ago.
    They are expected to fall 10% from peak to trough, less than
one-third of the slump during the 2007-08 global financial
crisis (GFC), and also slightly milder than the 12% in a poll
published in December.
    "Buyers are ready to get back into the market. However,
volatile mortgage rates, which had dropped in January,
encouraging sales activity, will continue to pose affordability
challenges, limiting demand," said Crystal Sunbury, senior real
estate analyst at RSM, a U.S.-based consulting firm.    
    While house prices probably had a bit further to fall, an
overall housing shortage will broadly support these
historically-elevated levels, Sunbury said.
    Indeed, the U.S. outlook was a bit more optimistic than
other similar housing markets, like Canada and Australia, which
are set to mark bigger falls this year.
    Although over 60% of analysts, 16 of 25, said purchasing
affordability would improve over the coming year, they were
split on how home ownership would change in the next two to
three years. While 13 said it would decrease, 12 said it would
increase.
    "There are growing signs stretched affordability is weighing
on home ownership, particularly for those (aged) under 35. We
expect this to persist in the coming quarters," said Sam Hall,
property economist at Capital Economics.
    "We don't think affordability will return to its post-GFC
levels or even its pre-pandemic average in the coming years."
    The 30-year fixed mortgage rate, currently at 6.5%, will
average 6.35% this year, the poll found.
    As owning a home looks to be a distant dream for many,
especially for those who have not seen such high rates in their
lifetime, rents are also climbing.
    Rental price inflation, one of the primary reasons overall
inflation has remained sticky, will average 2.1% this year and
surpass core inflation in 2024 and 2025, the survey showed.
        
    (For other stories from the Reuters quarterly housing market
polls:  urn:newsml:reuters.com:*:nL4N3570N3)    

 (Reporting by Indradip Ghosh and Prerana Bhat; Polling by
Susobhan Sarkar and Sujith Pai; Editing by Hari Kishan, Ross
Finley and Simon Cameron-Moore)
 ((Indradip.Ghosh@thomsonreuters.com;))