The latest Case-Shiller report found a 2.2% price decline in U.S. homes since June which means that we’ve moved into the second biggest home price correction of the post-World War II era.
On paper, it’s tied with the 2.2% drop between May 1990 and April 1991, however, given that the index is a three-month average, we know the October numbers will surpass that mark. We will be referencing this article.
One reason prices might be falling so quickly is simply because home prices rose so high, so fast during the pandemic. And now that mortgage rates have also spiked, many buyers are either priced out or have lost their mortgage eligibility altogether.
Among the 20 major U.S. housing markets tracked by Case-Shiller, the home price decline ranges from just -0.55% in Atlanta to -10.4% in San Francisco. (Chicago and Cleveland remain at their peak 2022 price).
It isn’t just San Francisco: The Western half of the country, including markets like Seattle (down 9.16%) and Phoenix (down 3.86%), is clearly the epicenter of the ongoing home price correction. What’s going on? The Western half of the country, where affordability is a greater issue, has heightened vulnerability to interest rate shocks.
The correction continues to be milder in the Northeast and Midwest. Markets like New York and Detroit are only down 1.58% and 0.81% from their respective peaks. As of the housing cycle rolled over this summer, those markets were not flooded with inventory from iBuyers and builders. That has given sellers in markets like New York and Detroit a bit more breathing room.
Where do we head from here?
Economists at Zillow believe the home price correction will wrap up by January 2023, and we’ll see a 0.8% gain in home values over the coming 12 months. Meanwhile, economists at Morgan Stanley, Goldman Sachs, and Moody’s Analytics think home prices will fall around 10% from peak-to-trough. While firms like Zonda and KPMG think we’re barreling towards a 15% peak-to-trough decline in U.S. home prices.