Housing Market Collapse Could Push Home Prices Down 20% In Major Markets Like Dallas And Los Angeles, Experts Predict

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With mortgage demand falling to its lowest level in 25 years, some experts believe the contraction in the housing market will hit a number of regions particularly hard – affecting prices in pandemic-era hotspots and other areas where affordability has fallen , by up to 20%. even if the broader housing market stays afloat.

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Important facts

Mortgage applications in the seven days to Friday plunged 14.2% from the previous week, pushing total applications to their lowest level since 1997, according to data released Wednesday by the Mortgage Bankers Association.

In the last six weeks alone, interest rates have risen to $337, or 15% of the typical monthly mortgage payment, and have hurt housing demand nationwide — so much so that prices have slipped from record highs in some markets in the last few weeks.

According to real estate agent Redfin, the median home selling price rose 7% last year to $369,250, but prices in San Francisco are down 4%, while prices in neighboring Oakland and New Orleans are down 0.5% and 11%, respectively. have fallen. respectively.

While he doesn’t expect a nationwide correction, Tejas Joshi, director of investment firm Yieldstreet, expects home prices in some regional markets where new home construction will boost supply could fall by 20% — homebuilders will be forced to price “aggressively.” to lower coming months in areas like Dallas, Austin, Texas and Boise, Idaho.

He also expects the correction to be worse for pandemic-era hotspots like Phoenix, Austin and Las Vegas, which have seen an influx of new residents over the past two years, compounding affordability concerns some markets — including a high concentration in the US – have worried western US – according to Goldman Sachs vulnerable to a real estate market correction.

Goldman notes that 9% of active listings have lowered prices on Zillow (mainly in areas where prices have risen sharply during the pandemic), suggesting that less affordable areas — like western cities like Seattle, San Diego and Los Angeles — are offered — are most vulnerable to a correction, while more affordable metros in the South are likely better positioned to avoid a correction.

Surprising fact

Goldman’s chief credit strategist Lotfi Karoui says national house prices are likely to avoid a correction next year, but he expects 39% of metro areas to see price declines.

Crucial quote

“It’s important to remember that a lot of the housing market data . . . reported are based on home purchases agreed a month or more ago when mortgage rates were a point and a half lower,” says Redfin economist Taylor Marr. “Sellers should expect buyers to be unwilling or unable to pay a similar price to their neighbor’s house a month ago.”

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Other areas that might not be affected by a major home price correction are those with little new construction, Joshi says. He notes that many markets in the Northeast, for example, have “fairly low” incoming supply and that most sales are from existing homes, making it likely that homeowners are simply staying in place longer rather than selling at lower prices.

Further reading

Homebuyers are getting 9% less space than last year thanks to rising mortgage rates (Forbes)

Housing market volatility is showing “early signs” of a recession as new home sales soar ahead of expectations (Forbes)

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