The past couple of years have proved to be a great time for home sellers, with property prices jumping by almost 40% since the start of the pandemic. But those heady days are likely over, with Wall Street economists predicting that the average home price could either "stall completely" or even fall as a housing correction takes hold.
Nationally, home prices could slip about 5% due to an affordability crunch brought on by higher mortgage rates and home prices, Moody's Analytics chief economist Mark Zandi told CBS News. On Tuesday, Goldman Sachs economists forecast that home prices will flatline, with 0% growth in 2023.
Flat to declining home sale prices could provide a breather for homebuyers, who continue to face sharplywhich have added to the cost of purchasing a home. And because their incomes aren't keeping up with the double whammy of higher borrowing costs and home prices, more buyers are being pushed to the sidelines.
"A typical buyer will pay $500 to $600 more a month on that mortgage than they would have a year ago" due to higher mortgage rates and home prices, Zandi said. "For many first-time buyers, that is unaffordable."
Because of those dynamics, "demand is drying up and so prices have to come back in," he added.
The biggest price declines could occur in the, such as cities in the Southeast, Texas and the mountain West, Zandi said.
Homes in Charlotte, North Carolina, are overvalued by 66%, while those in Austin, Texas, are 61% overvalued, according to Moody's. Boise, Idaho, which drew people who relocated from California, is overvalued by 72%, they found.
Zoom towns on the decline
There could be more than affordability issues at play, according to Goldman analysts. For instance, part of the surge in demand for housing was tied to the pandemic, with people seeking more space during the lockdown. Others were able to work remotely and thus relocated to cheaper cities, such as people moving from San Francisco to Boise.
Those trends appear to be dying down, Goldman said. Data suggests "those tailwinds have already largely faded, as regions that experienced outsized increases in home sales and building permits in 2020 and 2021 are now experiencing disproportionate declines this year," the Goldman report noted.
Still, both Goldman and Moody's noted that housing supply remains an issue, which could provide some support for the real estate market. Even before the pandemic, American cities didn't have enough homes for sale, according to afrom housing policy group Up For Growth. That likely only worsened during the pandemic, the group told CBS News.
The housing shortage "will help support the housing market, but won't save it from this housing correction," according to Zandi.
"That's why that's a correction, down 5% to 10% peak to trough, and not a crash," he said.
Back in the financial crisis of 2008, home prices fell by almost 30%, noted Zandi, who predicted that home prices won't have "the kind of broad-based crash we saw over a decade ago."
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