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Market Update

November | Park City Real Estate Market Update

By October 1, 2022December 5th, 2022No Comments

Article Authored by Bob Bemis
Original Article Featured in PCMLS Monthly

Fannie Mae predicts drop in prices in 2023

In their most pessimistic forecast of the year to date, economists at Fannie Mae say they now expect national home prices to decline by 1.5 percent in 2023, with home sales predicted to fall by 21 percent as Federal Reserve policymakers continue to struggle to get inflation under control. “While affordability measures are very stretched and median home prices are well-deviated from their historical relationship to typical household incomes, we do not anticipate that home price declines will result in a repeat of the Great Financial Crisis,” Fannie Mae economists said in commentary accompanying the latest forecast.

“Looking ahead to the full year 2023, on a national basis, we expect an average home price decline of 1.5 percent,” Duncan said. “Given the ongoing tension between potential homebuyers and home-sellers at the moment, we believe the pace of sales is likely to slow even further, too.”

FNMA also predicted a significant drop (down 21%) in total sales in 2023. In its February forecast — published two weeks before Russia’s invasion of Ukraine — Fannie Mae predicted a 2.4 percent drop in 2022 home sales, followed by a further 3.5 percent decline next year to 6.487 million homes. The latest forecast envisions an 18 percent drop in 2022 homes sales to 5.641 million and another 21 percent drop next year to 4.47 million.

Nationwide, the decline has begun.

Prices in August were 13% higher nationally compared with August 2021, according to the S&P CoreLogic Case-Shiller Home Price Index. That is down from a 15.6% annual gain in the previous month. The 2.6% difference in those monthly comparisons is the largest in the history of the index, which was launched in 1987, meaning price gains are decelerating at a record pace.

The 10-city composite, which tracks the biggest housing markets in the United States, rose 12.1% year over year in August, versus a 14.9% gain in July. The 20-city composite, which includes a broader array of metropolitan areas, was up 13.1%, compared with a 16% increase the prior month.

A quick jump in mortgage rates from record lows this year has turned the once red-hot housing market on its heels. The average rate on the popular 30-year fixed home loan started this year right around 3%. By June it stretched over 6% and is now just more than 7%, according to Mortgage News Daily. These data show clearly that the growth rate of housing prices peaked in the spring of 2022 and has been declining ever since.

Source: https://www.cnbc.com/2022/10/25/home-prices-cooled-at-a-record-pace-in-august-sp-case-shiller-says.html

But what about here?

We just finished our Q3 market stats report (Click here if you missed it ) so we won’t dive into price trends so soon after that. But our friends at Domus Analytics just published a national analysis of prices and inventory, and it’s worth a few minutes of your time so I’m just going to blatantly steal it and copy it here.

Executive Summary

  • The unrestrained seller’s market ended between February and April.
  • Closed prices peaked approximately in May.
  • The inflection point of the market acceleration was early 2020, at the start of COVID-19.
  • Markets that skyrocketed are retreating from their peaks the quickest. Markets that were insulated from that acceleration are experiencing a more muted pull-back.
  • Increasing mortgage rates continue to put pressure on affordability and price.
  • Increasing inventory and increased DOM is giving qualified buyers more negotiating power than they’ve had in the last few years, further putting pressure on price.

Median Price has backed off from all-time highs in the Spring

This median closed price chart is common in shape for many markets we follow.

Notice the three distinct market dynamics in this chart. The purple line is an inventory-compressing market with steady price growth, through 2019. The red line is COVID-accelerated rapid price appreciation, early 2020 through early 2022. Finally, the green line is the current 2022 price retraction.

By the time we saw the closed price drop, the market cooled long before then. Price is a lagging indicator of behavior. Buyers had to find a house they loved. Buyers with advantageous rate locks shopped hard before those rates expired. Buyers and sellers negotiated final contracts. Everyone waited through the escrow period. Only after closing did we learned the closed price of a listing.

Active Inventory returned to pre-pandemic levels in many markets
Inventory is rebounding in all markets and in most all segments.

In this interesting market, the current inventory levels mirror inventory levels from 2012-2019. That was still a constrained inventory/seller’s market. The blue shaded area is COVID, from early 2020 to early 2022. Inventory shot up very quickly this year and is now back to pre-pandemic levels.