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Will U.S. Home Prices Drop in 2022? 2023?

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Housing prices continue to boggle the minds of economists and analysts across the country. Will U.S. home prices fall…

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This article was originally published by Investor Place

Source: SewCream / Shutterstock.com

Housing prices continue to boggle the minds of economists and analysts across the country. Will U.S. home prices fall anytime soon?

Well, for most, housing remains something of a mystery. Although rising mortgage rates rapidly kill home sales, home prices are still stubbornly elevated. Indeed, 30-year fixed mortgage rates are hovering close to 6%, their highest level in over a decade. This has had a surprisingly drastic effect on home demand. Mortgage applications and home sales are quickly dropping, yet the red-hot pandemic housing market continues to rage. Not for long, however.

With mounting concerns over a recession, inflation and interest rates, many economists believe housing may finally cool down. In fact, the accelerated nature of housing over the past few years has led some to predict an impending “housing recession.” Home prices climbed more than 42% over just the past two years. That’s largely a consequence of the mismatch between supply and demand in the country.

The current housing market is a product of the surge in demand when the pandemic hit and interest rates fell to near-zero. Housing has also largely been propped up by a limited supply of real estate in the States. Home construction had been sluggish practically since the 2008 housing crash; Covid-19 only slowed the industry further. In February, the inventory of homes in the U.S. even hit a “record low of just 1.8 months of supply.” Red-hot demand and rock-bottom supply have pushed home prices to where they are today.

Looking to the future, however, economic conditions are rapidly changing in favor of lower home prices. But the question remains: how low?

When Will Home Prices Finally Ease?

Knowing why home prices have continued to climb is only half the battle. Most would-be homebuyers are more concerned with when and if housing will fall. It’s a difficult question, largely dependent on the macroeconomic state of the country and the world. Should a recession take root in the country — which seems like a very possible reality — housing demand may fall enough to actually drop prices. Many pinched homeowners may well start lowering their asking prices en masse as unemployment climbs and wage growth stagnates.

There are also signs that the supply of homes is finally on the up and up. According to the National Association of Realtors (NAR), the inventory of housing in the U.S. hit 2.7 months in June. That’s still low, but a promising sign nonetheless.

A number of real estate agencies and investment firms have already predicted an impending housing market cooldown. Some estimate a drop of as much as 10%. Others are more hesitant about housing’s falling power. This includes Ruben Gonzalez, Chief Economist at real estate brokerage Keller Williams.

“It seems likely that we will return to a pace of home sales more consistent with pre-pandemic levels […] But we also see long-term demographic trends that will continue to keep demand for homeownership growing over the next decade.”

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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