US Home Prices Are Destined To Fall

US Home Prices Are Destined To Fall

Mortgage rates in the US rose above 6% last week for the first time since November of 2008. The 13bps jump from the prior week marked the fourth consecutive weekly increase, and the fifth in six (figure on left, below). In July, as rates fell alongside a retreat in Treasury yields and a rally in US stocks, some observers who should've known better suggested we'd seen the highs. We hadn't. And probably still haven't. Housing market aficionados are, in my experience, among the most biased marke
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9 thoughts on “US Home Prices Are Destined To Fall

  1. When you say, ‘it’ll be too late for the Fed”, are you saying that no amount of easing will help the resultant contraction? Given The geopolitical and economic realities, is the dynamic that followed and became embedded since the GFC about to be broken? I looked at the referenced graph.

    1. No, I’m saying when you engineer a housing bonanza that turns everybody with a $500k home into a nominal millionaire over an 18-month period (which is what the Fed did post-pandemic), shelter inflation is going to go through the roof on a 9- to 12-month lag as sure as night follows day. And by the time you (where, in this case, “you” means the Fed) realize what’s going on, it’s going to be too late to do anything about it.

      But wait, there’s more. Because everybody with a $500k home now has a $900k home and thereby thinks they’re genuinely well-off (as opposed to just “reasonably secure”), and because everyone with a $750k home now has a $1.2 million home and thereby thinks they’re actually rich (as opposed to just “genuinely well-off”), a lot of people are going to retire, reducing the size of the labor pool, which in turn increases competition for increasingly scarce workers, thereby driving up wages, perpetuating the wage-price spiral.

  2. If we want young people to form households then we need those prices to come down. I could not afford my house today that I bought for cash almost 12 years ago. A 20% down payment would be slightly more than I paid for the home, and the bank would probably never approve the mortgage based on my income. I don’t know how my nieces will ever buy a home.

  3. I am not as bearish as h, but nominal prices need to adjust moderately now. Where I agree wholeheartedly with h is real inflation adjusted prices. They need to come down a lot. They will over the next 5 years. In areas where growth is strong in the next 5 years the adjustment will be less. In slow growth areas it will be greater. You can probably bet that nominal prices will be flattish in most markets over the next 5 years.

  4. Having finished reading your last six posts, I would opine they all should have been framed in black. Normally, Halloween is at the end of October, but this year it may come much earlier.

  5. My wife “virtually” shops for homes on-line all of the time. She looks at homes all over the country, but mostly on the West Coast, where demand and prices are usually high. For the first time in two-years, she is seeing properties sit for more than two-weeks. She is also seeing the number of three bedroom, two bathroom homes increase–particularly in non-metropolitan areas–and she is seeing price reductions of $25,000 on many of those homes. This was even before mortgage rates reached 6%, and they are likely to go even higher. For much of the pandemic, real estate prices seemed to mirror the rise in tech stocks, which I myself found rather unsettling.

  6. I put my home and property on the market in July. We have continuously dropped the price. However, the list price is still a nice premium. Praying (not literally of course) I can get of here before the Winter.

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