This is a very good article regarding what has happened to home prices over the last several months. Basically, what it's saying is, contrary to popular belief (from those pundits NOT on the ground), home prices have remained steady. And, now are showing signs of future increases.
I noted "those pundits NOT on the ground" in my remarks. That's because over the years, it's been my experience that those pundits are almost always wrong. I experienced it in my mortgage career and now in real estate. This bad information that we continually deal with impacts the decisions of our clients. I can't tell you how many of our clients have lost money over the last year, because they were waiting on home prices to fall. Based on information from the pundits. And, many times their friends and acquaintances. All the while, listening to us tell them to not wait. We can certainly be wrong. I hope that doesn't happen, but of course, it's possible. But, I still maintain, based on being 'in the thick of it" for over 45 years, that we are not going to see a drop in home prices. Too much demand and not enough inventory. And, even if interest rates remain at today's levels, people will eventually adjust to the rates and move on. People can rent or they can buy. Buying is the best option.
Oops! Home Prices Didn’t Crash After All
During the fourth quarter of last year, many housing experts predicted home prices were going to crash this year. Here are a few of those forecasts:
Jeremy Siegel, Russell E. Palmer Professor Emeritus of Finance at the Wharton School of Business:
“I expect housing prices fall 10% to 15%, and the housing prices are accelerating on the downside.”
Mark Zandi, Chief Economist at Moody’s Analytics:
"Buckle in. Assuming rates remain near their current 6.5% and the economy skirts recession, then national house prices will fall almost 10% peak-to-trough. Most of those declines will happen sooner rather than later. And house prices will fall 20% if there is a typical recession.”
“Housing is already cooling in the U.S., according to July data that was reported last week. As interest rates climb steadily higher, Goldman Sachs Research’s G-10 home price model suggests home prices will decline by around 5% to 10% from the peak in the U.S. . . . Economists at Goldman Sachs Research say there are risks that housing markets could decline more than their model suggests.”
The Bad News: It Rattled Consumer Confidence
These forecasts put doubt in the minds of many consumers about the strength of the residential real estate market. Evidence of this can be seen in the December Consumer Confidence Survey from Fannie Mae. It showed a larger percentage of Americans believed home prices would fall over the next 12 months than in any other December in the history of the survey (see graph below). That caused people to hesitate about their homebuying or selling plans as we entered the new year.
The Good News: Home Prices Never Crashed
However, home prices didn’t come crashing down and seem to be already rebounding from the minimal depreciation experienced over the last several months.
In a report just released, Goldman Sachs explained:
“The global housing market seems to be stabilizing faster than expected despite months of rising mortgage rates, according to Goldman Sachs Research. House prices are defying expectations and are rising in major economies such as the U.S.,. . . ”
Those claims from Goldman Sachs were verified by the release last week of two indexes on home prices: Case-Shiller and the FHFA. Here are the numbers each reported:
Home values seem to have turned the corner and are headed back up.
Bottom Line
When the forecasts of significant home price appreciation were made last fall, they were made with megaphones. Mass media outlets, industry newspapers, and podcasts all broadcasted the news of an eminent crash in prices.
Now, forecasters are saying the worst is over and it wasn’t anywhere near as bad as they originally projected. However, they are whispering the news instead of using megaphones. As real estate professionals, it is our responsibility – some may say duty – to correct this narrative in the minds of the American consumer.