The US housing market faces a 20% correction and more rate hikes caused by the affordability crisis
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The US housing market faces a 20% correction amid further rate hikes and an overinflated housing market, Dallas Fed warns
- US housing market may drop 20 percent due to affordability crisis
- Rising mortgage rates may lead to further decline in the market as it hits 6.7%
- Home sales have increased significantly since the market boom of 2020
US home prices may fall 20 percent and rising mortgage rates may lead to a bigger plunge as the affordability crisis worsens, the Dallas Federal Reserve has warned.
The median home price has increased significantly since 2020 when several people chose to sell their homes and move to suburban areas. But now, several areas, including Austin, Texas, and Phoenix, Arizona, are expected to see double-digit price drops by 2024.
The Dallas Federal Reserve credited a 19.5 percent correction due to the ongoing affordability crisis and the home price-to-rent ratio. The house price to rent ratio compares the cost of a house to the rent.
According to the report authors, Lauren Black and Enrique MartĆnez-GarcĆa, the 19.5 percent correction [is] necessary to bring the US in line with its fundamentals.’
US home prices may fall 20 percent and rising mortgage rates may cause a bigger drop as the affordability crisis worsens. House prices have skyrocketed since 2019
The 6.71 percent mortgage rate increase is discouraging potential buyers. Mortgage application volume has fallen to its lowest level in 28 years
The 6.71 percent mortgage rate increase is discouraging potential buyers. Fewer home sales is a worrisome sign for the housing market as it gears up for the spring buying season, which is typically the peak period for home sales.
Mortgage application volume has fallen to its lowest level in 28 years, in response to fresh signs that inflation remains stubbornly persistent.
If the Federal Reserve continues to raise mortgage rates, the drop may be less than 20 percent, the authors warn.
Meanwhile, the US price-to-rent ratio declined late last year as the cost of housing stabilized more than rent, according to the report.
“If the observed price-rental relationship grows at an explosive rate relative to its estimated fundamental relationship with long-term interest rates and income growth data, the bubble hypothesis warrants attention,” the report reads.
If the federal reserve continues to raise mortgage rates, the housing decline may be less than 20 percent.
Mortgage rates soared to more than 7% in October when the Federal Reserve raised its benchmark rate at the fastest pace in 40 years, but began to decline late last year on signs that inflation was abating.
Stronger-than-expected readings on inflation, job earnings and consumer spending led investors to increase their bets that the Fed will continue to raise its policy rate through the summer.
The interest rate sensitive housing sector has borne the brunt of the Fed’s aggressive monetary tightening over the past year.
In January, existing home sales fell for the 12th straight month, falling 36.9% from a year earlier, according to recent data from the National Association of Realtors.
The decline was nationwide, but steepest in the West, where sales fell 42.4 percent year-over-year.
The median price in the West was still the most expensive in the country at $525,200, down 4.6 percent from January 2022.
In the Northeast, existing home sales fell 35.9 percent; in the south 36.6 percent.
The Midwest fared slightly better, with existing home sales falling 33.3 percent.
The northeast median home was at $383,000; in the South it was $332,500; while in the Midwest it was the cheapest in the country, at $252,300.
