Wall Street: U.S. housing market to see the second-biggest home price decline since the Great Depression

[beijingwalker]

Wall Street: U.S. housing market to see the second-biggest home price decline since the Great Depression​

BYLANCE LAMBERT
October 3, 2022 at 5:37 PM GMT+8

National home price declines are uncommon, but it does occur on occasion. It happened in the early 1980s, then again in the early 1990s, and most notably in the years following the 2008 housing crash. That said, sharp home price declines are incredibly rare: Only the Great Depression and the Great Recession saw nationwide home prices fall in the double-digits range.

That history—or lack of history—is why recent outlooks published by Wall Street titans are raising eyebrows. Not only is there a building consensus on Wall Street that we’ve entered into a period of falling home prices, but there’s also a consensus it will be the second-sharpest home price decline since the Great Depression.
Let’s take a look at where financial giants expect U.S. home prices to head next.

Morgan Stanley: U.S. home prices to fall 7%​

Last week, Morgan Stanley finally joined the housing bear crowd. Heading forward, the investment bank now expects U.S. home prices to fall 7% by the end of 2023. On one hand, that’s far smaller than the 27% peak-to-trough decline the country experienced between 2006 and 2012. On the other hand, it’s twice as large as the 3.1% peak-to-trough decline posted in the early ’90s. In fact, if Morgan Stanley’s forecast comes to fruition, it would mark the second-sharpest drop since the Great Depression.

The culprit? Spiking mortgage rates, coupled with unprecedented home price growth, has put affordability into the upper bounds of history.

“If we assume a 7% mortgage rate, affordability looks materially worse than today. And the pace of its deceleration has already more than doubled compared to almost any time in history,” writes Morgan Stanley researchers. “The positive takeaway—which we think puts the magnitude of this [7% forecasted home price] drop into perspective—is that this decrease would only bring home prices back to where they were in January 2022. That is still 32% above where home prices were in March 2020.”

Keep in mind that a 7% decline is Morgan Stanley’s “base case” forecast. The investment bank also issued a “bull case” and a “bear case.” If mortgage rates come back down to earth by next spring (i.e., Morgan Stanley’s bull case), U.S. home prices could climb 5% in 2023. Conversely, if the country slips into a recession (i.e., Morgan Stanley’s bear case), the national home price decline could exceed 10%.

“Affordability is already challenged, exposing would-be homeowners to an increasing rent environment that erodes their ability to save for a down payment. If that were to be combined with increasing unemployment, we could imagine a scenario in which existing home sales continue to outpace the GFC to the downside,” writes Morgan Stanley researchers, referring to the Global Financial Crisis.

Goldman Sachs: U.S. home prices to fall 5% to 10%​

As weakening housing data trickled in this summer, Goldman Sachs affirmed its positive home price outlook for 2023. Well, that was until it caved last week.

Peak-to-trough, Goldman Sachs now expects U.S. home prices to fall 5% to 10%. That’s a sharp downward revision from last month, when the investment bank predicted that U.S. home prices would rise 1.8% in 2023.

“We view the risks to these estimates as tilted to the downside because of a sharp deterioration in our descriptive home price outlook scores and evidence of strong mean reversion in regional data,” write Goldman Sachs researchers.

Simply put: Goldman Sachs acknowledges its 2023 outlook might still be on the conservative side.

Moody’s Analytics: U.S. home prices to fall 5% to 10%​

Good mortgage underwriting. Plain vanilla lending. Record low vacancy rate. That’s why Moody’s chief economist Mark Zandi says we aren’t heading for a 2008-style housing crash. However, Zandi says improved lending practices and tight housing supply won’t be enough to prevent the ongoing home price correction. The fundamentals, he says, are simply too detached from reality.

Peak-to-trough, Moody’s Analytics expects U.S. home prices to fall 5% to 10% even if a recession doesn’t come to pass. If the country slips into an economic downturn, Moody’s Analytics predicts U.S. home prices would fall by 10% to 15%. Either way, Zandi says, it will likely take 12 to 18 months for prices to bottom out.

When a group like Moody’s Analytics or Goldman Sachs says the "U.S. housing market" or "U.S. home prices," they're talking about an aggregated view of the country. On a regional level, those results are going to vary. The ongoing home price correction won't be an exception.


Every quarter, Moody’s Analytics assesses whether local fundamentals, including local income levels, can support local home values. If a regional housing market is “overvalued” by more than 25%, Moody’s Analytics deems it “significantly overvalued.” Through the second quarter of the year, 210 of the nation's 413 largest regional housing markets fell into the “significantly overvalued” camp.

Heading forward, Moody's Analytics predicts that "significantly overvalued" housing markets should see home price declines between 10% and 15%. If a recession hits, Moody’s Analytics expects those home price declines to widen to 20% to 25% in “significantly overvalued” housing markets.

Fitch Ratings: U.S. home prices could fall 10% to 15%​

A few weeks back, Fitch Ratings finally gave its housing outlook. The Big Three credit rating agency is clearly on the bearish side.

“The likelihood of a severe downturn in U.S. housing has increased; however, our rating case scenario provides for a more moderate pullback that includes a mid-single-digit decline in housing activity in 2023, and further pressure in 2024,” wrote Fitch Ratings researchers on Tuesday. “Although we recently affirmed the ratings and Stable Outlooks for our U.S. homebuilder portfolio, ratings could face pressure under a more pronounced downturn scenario that would likely include housing activity falling roughly 30% or more over a multiyear period, and 10% to 15% declines in home prices.”

Of course, if home prices actually drop 10% to 15%, Fortune might rebrand the Pandemic Housing Boom. The Pandemic Housing Bubble sounds more fitting.

Wall Street: The U.S. housing market to see the second biggest home price decline since the Great Depression

There's a new consensus on Wall Street: We're headed for a historically sharp home price drop.

fortune.com

 

[SaadH]

Crash already underway in US housing market.

 

[beijingwalker]

Crash already underway in US housing market.

They are busy laughing at China's housing market, someone never looks at themselves in the mirror.

 

[Ghareeb_Da_Baal]

Crash already underway in US housing market.

On the retail side, looks like massive deflation is on the horizon.
Layoffs & massive pay cuts even at middle/upper management already happening.
Target & brands like Nike in trouble with inventory they cant seem to unload.
Automotive industry about to take a beating by way of bad debt and affordability issues
Hopefully, fed won't make it much worse! Keeping my fingers crossed.

 

[SaadH]

On the retail side, looks like massive deflation is on the horizon.
Layoffs & massive pay cuts even at middle/upper management already happening.
Target & brands like Nike in trouble with inventory they cant seem to unload.
Automotive industry about to take a beating by way of bad debt and affordability issues
Hopefully, fed won't make it much worse! Keeping my fingers crossed.

I want it to crash so I can get back into the market and pick up a property or two that went up 50% in one year for no reason at all...

 

[Ali_Baba]

The same will happen in the UK - prices are massively inflated due to low interest rates and goverment pumping up of prices.

We are int the UK about due a correction ...

 

[SaadH]

The same will happen in the UK - prices are massively inflated due to low interest rates and goverment pumping up of prices.

We are int the UK about due a correction ...

Yup Wall Street, private equity and Real Estate SPACs/sites ruined the market...now is the time for them to burn for overpaying for houses they hoped to rent to public at exorbitant prices.

Crash and burn...

 

[dbc]

They are busy laughing at China's housing market, someone never looks at themselves in the mirror.

interest rates go up the demand for housing goes down, its normal. Unlike China where even low interest rates and incentives isn't able to slow down the slump in property prices. That is the key difference, people with liquidity will buy new units at low prices. The rest will wait for interest rates to fall.

 

[Communism]

interest rates go up the demand for housing goes down, its normal. Unlike China where even low interest rates and incentives isn't able to slow down the slump in property prices. That is the key difference, people with liquidity will buy new units at low prices. The rest will wait for interest rates to fall.

There's nothing normal about the housing prices in the U.S.


Hypothecation of 30 year loans is a form of money printing.


This is because the collateralization of the loan is the asset itself.


Interest rates will not fall until inflation is defeated, at which point the housing prices need to be reset far lower as a direct consequence of less money printing.


People here somehow think that rising property prices is a good thing, when it's obviously a bad thing.


Rising property prices means rising of the fake economy and lowering of the real economy.


Lowering of property prices means rising of the real economy and lowering of the fake economy.


Having interest rates lower and then housing not rising is 100% a good thing, as it means one of the major costs of an economy, that of housing, is secularly lowering.


The next few years will see the large-scale destruction of fake economies as there is no longer a Fed giving free money to prop up fake economics.

 

[Hamartia Antidote]

Crash already underway in US housing market.

It usually hits hardest in speculation markets of the West coast.

Zillow Forecast: House prices in these 259 real estate markets will fall - while these 615 rise - US Today News

Already in 1981, the New York Times ran a play entitled "The arrival The collapse is already here.” The premise of the article was that the Federal Reserve's

ustoday.news

 

[Communism]

Laugh it up europoors.


The Fed is reseting the creeping (neo)feudal rent-seeking of the past 50+ years.


You might need to get a real job instead of your rent-seeking fake job that doesn't produce anything for the economy.


You are already seeing the results with the most fake economies doing the worst so far, and this trend is simply going to continue for at least a few years.

 

[DabbuSardar]

The same will happen in the UK - prices are massively inflated due to low interest rates and goverment pumping up of prices.

We are int the UK about due a correction ...

UK is much worse, i just went through their mortgage data and almost half of them are ARMs changing in January.

Given the amount of freeloaders they have squatting with low payments they are doomed unless government begins its handouts again.
If this goes south britain might well never recover and fall below top 10 economy.

No wonder though the brits been usless at innovation or producing anything for a while now.

 

[Hamartia Antidote]

They are busy laughing at China's housing market, someone never looks at themselves in the mirror.

I am...and I don't see any of our builders claiming 100's of billions in debt.

Infact people are crying they don't build enough.

 

[Abdul Rehman Majeed]

I like what US Fed is doing. Interest rates will climb to 20% in the next 3 years.

US housing market will crash by over 80%

Great depression will look like a mild recession when compared to this.

 

[ApparentRaceTraitor]

Atleast in Canada, the housing market in Ontario and BC are oversaturated and overvalued. People are now migrating in droves to AB after selling their homes and buying a similar sized home for a quarter to half of the value upfront, thereby repeating the same BS here.

I have a 5 bedroom home I bought in 2020, in the last 8 months, we've received more mail and realtors asking if we want to sell above market value, as well as local immigrant families asking if we want to sell to their relatives. And other than the number of bedrooms there is literally NOTHING special about my home.