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Review of all things Real Estate: Thoughts from 3 different eonomists

At our local area marketing meeting Wednesday morning, it was disclosed that there were an equal number of homes pending as there were active listings; this means there is a paltry one-month supply of homes on the market.

In a healthy market we’d see 4-6 months’ supply on the market. With this statistic in mind, any hope of meaningful price reductions appears unlikely; this kind of imbalance exerts upward pressure on prices. Which defies what we have been hearing from national sources that real estate prices are going to drop dramatically.

This article will include opinions from three different economists who are reading the same data but in some cases are arriving at significantly different forecasts.

Ian Shepherdson, an economist famous for predicting the 2008 housing crash, suggested that home price declines will accelerate further in 2023 because of low affordability and growing inventory. (

"We estimate that single-family home prices have fallen by 5.4% from their recent peak in May 2022, but they still need to fall further by 15% or so before they return to their long-run average, compared to disposable incomes," he wrote.

Although consumer demand is bouncing back from a low point in the fall as mortgage rates fall from a record-high, Shepherdson believes that prices have a ways to go before they hit bottom.

He said, “During the COVID-19 pandemic, home prices soared at a pace not seen since the 1970s with mortgage rates near a record low. Homebuyers, flush with stimulus cash and eager for more space during the pandemic, flocked to the suburbs. Demand was so strong and inventory so low at the height of the market, some buyers waived home inspections and appraisals or paid hundreds of thousands over asking price.

“That frenzy came to a halt when the Federal Reserve embarked on the most aggressive interest rate hike campaign since the 1980s as it tried to slow the economy and crush runaway inflation. Policymakers raised the benchmark federal funds rate seven consecutive times in 2022 and have indicated they plan to continue raising rates higher this year as they try to crush inflation that is still running abnormally high.

“The interest rate sensitive housing market has borne the brunt of the tighter policy, with mortgage rates more than doubling over the course of the year. Home sales evaporated and prices began to decline from record highs.

“But demand has shown early signs of returning as mortgage rates continue to fall: The average rate for a 30-year fixed mortgage dropped to 6.09% last week (Still significantly higher than just one year ago when rates hovered around 3.56%). "Mortgage rates have fallen by 93bp since late October, and demand looks to be rebounding modestly after collapsing last year," Shepherdson wrote.

“And although home prices are falling, they remain higher than they were one year ago: The median price of an existing home sold in December was $372,700, a 2% increase from the same time a year ago,” he continued.

Another aspect of Shepherdson's argument; he believes that home supply will increase going forward and prices tend to fall when supply increases.

Dallas Fed economist Enrique Martínez-García wrote, “U.S. home prices could tumble as much as 20% as the highest mortgage rates in two decades threaten to trigger a "severe" price correction….The excesses of the U.S. pandemic housing boom are likely to impact the economy differently than after the last housing boom.

He also said, “Expectations about future house prices are uncertain. However, futures on house prices appear to indicate, already, a nominal decline of about 10% over the next couple of years (by early 2025). Adding in inflation, the pessimistic scenario of a correction of close to 20% in real terms might not be out of the question.”

Lawrence Yun, National Association of Realtors Chief Economist, wrote, “Job gains are always good. Home sales and jobs are related over the long term. That is why the South and the Rocky Mountain regions are seeing more robust home sales gains over the long haul due to faster job growth compared to the rest of the country. But over the short-term, mortgage rates matter more. Robust job data will raise the prospect of consumer price inflation and the need for a more aggressive monetary policy to rein in inflation. So just as mortgage rates were trending down towards 6%, there could be a temporary rise. That will help lower the broader consumer price inflation and halt Fed rate increases by summer. Mortgage rates can then go below 6%.”

During our local marketing meeting it was stated local listings are still garnering multiple offers; often at or even above list prices, so our market is defying the national experts. Are we leading another changing market or lagging it? Time will tell. Next week, we will analyze strategies moving forward.


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