Why some housing markets seem to cool while others heat up

Burned by a hot housing market, some frustrated homebuyers may have hoped that sky-high prices were finally coming down to earth. Well, they are – sort of. It just depends on where you live.

To learn more about housing affordability, Chance The magazine reached out to Moody’s Analytics for the latest owner-occupied housing analysis. Researchers at Financial Intelligence have calculated how home prices in 414 regional housing markets are likely to change between the fourth quarter of 2022 and the fourth quarter of 2024.

Among the nation’s 414 largest housing markets, Moody’s Analytics forecasting model predicts that 210 markets are on the verge of seeing home price declines in the next two years and 204 markets are poised to see home price declines in the next two years.

Due to June’s rapid rise in mortgage rates, the possibility that home sellers will be able to take a big drop in prices is increasing.

Nationally, home prices rose 18.3 percent year-over-year in June 2022, compared with June 2021, marking the 125th consecutive month of year-over-year gains, according to data analytics provider CoreLogic. Although annual appreciation remained strong, it slowed for the second month in a row compared to last month, reflecting a decline in buyer interest partly due to higher mortgage rates and concerns about an economic slowdown.

Lawrence Yun, chief economist for the National Association of Realtors, suggests that housing markets may be at a critical juncture.

“I can say that those booming markets are driven by strong local job creation and new residents moving into those regions, including retirees,” he said. “So places like Phoenix, Tampa and Boise may or may not see any meaningful price reductions. They may also be set for further price gains.”

Yun added, “I can’t say because there is such an extraordinary price growth in such a short period of time. But despite the decline in prices in these markets, it will not cause any local economic damage given the strong housing stock of many local owners who bought it many years ago. Even some renters may want to go back to buying if prices drop.

He said he’s more concerned about housing markets weathering the storm in the absence of job growth and losing remote workers elsewhere.

“For high-wage white-collar workers, telecommuting is a huge source of income,” said Shaharyar Bokhari, senior economist at Redfin. “It allows them to move from a tech hub like San Francisco to a more affordable part of the country in Boise or Salt Lake City, get more housing for their money and save some for a rainy day. Local residents in those destinations—especially renters—are on the sidelines as home prices rise, while their incomes remain largely the same.” It can have the opposite effect on the people watching.

“Phoenix and Miami have the highest inflation in the country, partly because of skyrocketing home prices,” Bokhari added. “This ultimately reduces the financial benefits of moving to these areas for people from outside the city. High inflation cuts budgets for local residents, who are spending more on things like food and gas and ultimately saving less money for down payments.

A Redfin analysis of mortgage data shows that home prices in Boise, Idaho have more than doubled compared to homebuyer incomes. In Austin, Texas and Cape Coral, Florida, prices increased by 48 percent.

As domestic incomes rise and home prices rise in 2021, housing markets in most boomtowns are shrinking as high mortgage rates and unsustainable price growth tame demand.

Boise, Austin, Cape Coral, Phoenix, North Port, Florida and Tacoma, Washington are among the 20 fastest growing housing markets in the first half of 2022, according to Redfin. Miami, Stockton, California and Salt Lake City are among the 25 housing markets most vulnerable to home-price declines if the United States enters a recession. But while they are vulnerable to a recession-led downturn, these areas are unlikely to see a housing market crash because homebuyers there have relatively high incomes.

“People are still moving in from California and still have enough money to buy nice homes in desirable neighborhoods, sometimes with cash,” said Austin Redfin agent Gabriel Recio. But the days of selling houses at 25% off with huge discounts are over. Buyers are no longer enthusiastic due to rising mortgage rates and there are rumblings in the air about a slowing housing market. Local buyers – and out-of-town buyers – now have the opportunity to take their time and buy a home at asking price or asking price.

Selma Hepp, interim chief of the Office of Chief Economist at CoreLogic, said the markets the Moody’s model predicts will see lower home prices in the same markets as the CoreLogic Market Condition Indicators model.

“These markets have experienced significant home price appreciation relative to what is considered affordable by domestic income,” Heap said. The states, mostly from the Northeast, have seen significant migration as baby boomers retire. Those income buyers may look elsewhere where they now perceive prices to be more affordable, dampening demand and possibly causing some price reductions on the part of builders.

Realtor.com economic research manager George Ratieu said mortgage rates may be historically low, but so is homebuyer morale these days.

The bigger issue right now is that real estate markets are moving away from the tumultuous pace of 2020-2021 in a reset transition, following a sharp increase in mortgage rates in the first half of 2022, fueling a new deterioration in house prices. Records.

“The increase in borrowing costs has created an affordability ceiling for many buyers, who are finding that their income is not enough to cover the higher mortgage payments,” said Ratiu. “As a result, demand is slowing significantly, homes for sale are sitting on the market longer and homeowners are taking price cuts to close deals.”

In June, Realtor.com’s inventory data showed that about 15% of listed homes saw a price drop, more than double from last year. These trends are particularly visible in metropolitan areas, particularly in the Sun Belt, which have seen an influx of residents and capital over the past two years. Markets like Austin, Texas; Raleigh, North Carolina; the phoenix the Lakeland-Winter Haven metro area in Florida; And Stockton, California is posting some of the biggest gains in the number of homes for sale with price reductions.

Ratiu said, “Many markets experienced strong price appreciation during the pandemic, but as inflation ate into most people’s incomes, the ability to continue paying more was lost. With wages lagging behind prices and rates rising significantly from a year ago, we can expect these markets to continue to see sales and price adjustments through the remainder of 2022 and into next year.

Susan Wachter, the Albert Sussman Professor of Real Estate and a professor of finance at the Wharton School at the University of Pennsylvania, said Moody’s rate cut forecasts overstate housing markets based on income.

“That’s how these markets differ,” she explains. “Some markets have limited supply. They are less like some parts of Florida. Based on historical ratios, it is reasonable to expect that higher value markets will be at risk of slowing growth. What is not covered here is what happens after income growth slows down or slows down, i.e. in a recovery. Missing from this calculation is the identification of favorable supply-constrained markets in which inflation will rise after a recession. These markets are made hot again when there is a long-term increase in income.

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