As the housing market cools down, homebuilders are concerned that the downturn might be too steep for them to handle.
The COVID-19 economy was a good time for homebuilders as low interest rates and higher demand saw home prices spike by more than 40 percent in two years. But now that mortgage rates are elevated, buyers are stepping away, and the housing market is getting affected. For the week ended Oct. 26, the average interest rate for a 30-year fixed-rate mortgage was 7.08 percent, according to
data from mortgage lender Freddie Mac. This is up from 3.17 percent roughly a year ago.
During an
interview with CNBC, Gene Myers, CEO of Thrive Homebuilders in the Denver area, predicts the market will be “ugly” starting in 2023. His company’s balance sheet is strong at present owing to properties sold when prices were high.
“It is definitely a hard landing for housing,” he said. “Any hope of a soft landing really evaporated last spring, when it became so clear that our customers who are accustomed to such low mortgage rates just were going to go on strike.”
Some experts expect mortgage rates to climb even higher, which would put more pressure on the housing market. Rick Sharga, executive vice president of Market Intelligence for ATTOM, expects the 30-year rate to potentially touch 8 percent this month.
“Given the Federal Reserve’s lack of success so far, more increases to the fed funds rate are almost a certainty, which means there’s definitely an upside risk for mortgage rates,” he said, according to a Nov. 1
article at Bankrate.
Home Price Forecast
Morgan Stanley, which had originally predicted home prices to be up by 3 percent by December 2023, is now expecting prices to be lower by 3 percent by the end of next year.
Goldman Sachs’ home price model
predicts prices to fall by about 5–10 percent from their peak. Moody’s Analytics is also expecting a home price decline within a similar range. But for those markets which it considers as overvalued, the price drop can be in the range of 10–15 percent.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, makes an even bearish prediction of a decline, to the tune of 15–20 percent over the next year due to falling demand. In a note to clients, he warned that prices have “much further to fall” before the market completely adjusts to the collapsed demand.
“Home prices have only recently started to decline on a month-to-month basis … The resilience in prices was made possible by a lack of existing homes on the market,” the note
said, according to the New York Post.
“But supply is now rising—albeit slowly—as homeowners who previously held off on selling worry that further delays will mean they fetch a much lower price.”
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