The housing market is experiencing unprecedented conditions, raising questions about when this climate will improve. Recent data on existing home sales reveals that the market hasn’t been this dire since 2010, the depths of the Great Recession. In September, transactions plummeted by a staggering 15%, reaching a 13-year low. Zillow had previously warned about this “deep freeze” earlier this year. Economists like Mark Fleming from First American and Jeseo Park from Bank of America Research compare these conditions to the housing recession of the 1980s. Morgan Stanley recently analyzed the market and predicted even more difficulties for homebuyers, with a potential nationwide rise in home prices of up to 5%, contradicting their previous forecast of falling prices due to high mortgage rates. Conversely, Zillow has taken a different approach.
After predicting in February that U.S. home prices had hit rock bottom, Zillow economists consistently increased their forecasts each month until August. At that point, they projected a 6.5% increase in home prices over the next 12 months. However, they recently revised their forecast downwards, and this month they did so again.
In their latest report, Zillow economists predicted a 2.1% rise in home prices between September 2023 and September 2024. This is a significant decrease from their previous forecast of a 4.9% increase between August 2023 and August 2024.
They explained their revision, stating, “Zillow’s forecast of the nation’s typical home value was revised downward this month due to an uncharacteristic month-over-month dip in September and mortgage rates climbing ever higher.”
Zillow economists have now accepted that a strong labor market will result in an extended period of high interest rates. As a result, the housing market has lost some of its momentum.
“Elevated mortgage rates are discouraging new listings, as homeowners locked into relatively low monthly payments choose to hold onto their current homes,” wrote Zillow economists.
They now anticipate a 3.3% increase in national home prices for the year 2023, down from their previous prediction of 4.3%.
“While many potential buyers are facing affordability constraints, there are still enough active buyers to maintain competitive pressure on the limited supply of homes for sale,” they observed.
Morgan Stanley also revised its 2023 outlook, making a more dramatic change. Previously, analysts expected home prices to decline, but they now indicate that prices could rise by up to 5%. This reversal, stated in a research note released this week, aligns with the ongoing increase in mortgage rates.
Mortgage News Daily reports that the 30-year fixed mortgage rate has reached 8% this week, a level not seen in decades.
“It is likely they will stay around that level… in the last few months of the year, especially if the Fed does raise rates one more time before the year is done,” warned Mark Fleming, chief economist at Fortune 500 financial services company First American.
The Federal Reserve has not ruled out the possibility of further rate hikes. Andrew Levin, a former senior Fed adviser and current professor at Dartmouth College, recently told Bloomberg, “There is a very substantial risk that they will need to do more.”
This story was originally published on Fortune.com.
