Analysts expect house prices to fall next year

Analysts expect house prices to fall next year

Housing analysts at Morgan Stanley expect home prices to remain flat year over year in 2023 before falling next year.

The firm's housing research team wrote: "We expect home prices in 2023 to end the year flat versus 2022 before falling 2% in 2024 as affordability continues to adjust back to long-term averages and inventories slowly begin to climb from their lows." several decades ago slowly.".

This comes as home prices posted their fourth consecutive monthly rise in May, rising 0.7% from the previous month, the S&P CoreLogic Case-Shiller Index showed on Tuesday, amid tight inventory. At the same time, the index also showed that home prices fell by 0.5% yearly.

Meanwhile, data from Zillow revealed that the median home value in the United States was $348,853 as of July 28, 2023, up 1.2% from a year earlier.

"Putting on rosy glasses, we can also say that home prices rose 2.8% from January," the company's housing research team wrote. "We expect this year-on-year decline in negative prints to be short-lived."

However, this is good news for buyers pressured on affordability by inflated real estate prices and high mortgage rates. After increasing 45% from the beginning of 2020 to a peak in June 2022, home prices have fallen 5%.

The shift in home prices has helped affordability "no longer deteriorate," the researchers wrote, although it remains a challenge. At the same time, a supply deficit and the prospect of increased banking system regulation could put "sharp declines in home sales and housing starts behind us, but also preclude any sharp increases over the outlook horizon," the firm's office wrote. Housing Research Team.

"Housing activity has eased, but tightening lending standards and a persistent gap between new and outstanding mortgage rates are likely to prevent a meaningful increase in activity this year," the company's housing research team wrote.

Many homeowners are locked into their existing property because their mortgage rate is much lower than the prevailing rate, so they are reluctant to sell. This made it difficult for buyers to find previously owned homes, which drove home resales down 18% compared to June last year.

Buoyed by buyers frustrated with the resale market, the newly built home market is getting a little more life. While new home sales fell 2.5% to a seasonally adjusted rate of 697,000 units in June from May's revised rate of 715,000, according to the Census Bureau, the sales pace remained 23.8% higher than last year's level.

"We expect existing home sales to end in 2023 14% below 2022 levels, while new home sales post a 2% gain," the company's housing research team wrote.

According to NAR, the total housing inventory at the end of June was 1.08 million units, which equals 3.1 months of supply at the current sales pace. A rule of thumb in the industry is that a five to six-month supply is generally considered a balanced resale market—shortages of supplies convinced home builders to produce more homes. Morgan Stanley expects single-unit residences to start at the end of 2023, down 12% compared to 2022, which is an improvement over the 29% decline year-to-date.

"Once again, challenging affordability and a challenging lending landscape prevent significant increases in the near term," the company's housing research team wrote of the housing business. "But we believe that the steeper parts of the decline are behind us, and we envisage further recovery."