Capital Economics: House Price Declines Will Continue
US home prices have fallen for seven consecutive months, causing a decline between July 2022 and January 2023, as measured by the Case-Shiller National Home Price Index. However, they saw a rebound in February and March, according to the index. While the results of a January report published by Capital Economics were accurate, they also predicted that US home prices would fall by 8%. In June, Capital Economics published a new report, “Pause in house price declines to prove temporary,” which argues that the resilient spring housing market will cause house prices to revert back into correction-mode during the second half of the year.
Reasoning behind the Predictions
US housing markets have been under strain due to lack of affordability, with the situation having not seen such levels since the housing bubble. While researchers at Capital Economics explain that these house price increases had been caused by demand declining mortgage rates, rates have now returned to the double-decade highs set in October, resulting in demand falling to its lowest levels in nearly three decades. As well as the weakening economy, researchers predict that sales will remain low and that price growth will turn negative again later this year.
Potential Consequences of the Predictions
Most economic models, apart from CoreLogic and Zillow, predict that house prices will decline in 2023. For those forecasts to be correct, house prices will need to decline in the seasonally slow second half of the year sufficiently to eradicate all of the gains made throughout the seasonally warmer first half of the year. Moreover, national home prices can fall without prices falling in every US market. This is what occurred last fall, whereby housing prices in the Mountain West, Pacific Coast and Southwest experienced a sharp correction that was the driving force pushing national house prices lower.
US Home Prices: A Review & Analysis
After seven months of price declines, national US home prices saw a rebound in February and March. As measured by the Case-Shiller National Home Price Index, housing metrics began to recover as the 2023 spring housing market emerged, leading to a seasonally adjusted increase in March and February. Economic models, with the exception of CoreLogic and Zillow, still project house price declines in the US in 2023. They anticipate that these declines will hit during the seasonally slow second half of the year. These forecasts stem from the fact that housing affordability in the US has been strained and has reached levels not seen since the housing bubble. Importantly, it should be noted that national home prices can fall without prices falling in every market. This was the case last fall when sharp corrections in housing prices in the Mountain West, Pacific Coast and Southwest regions drove national house prices lower.
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