The U.S. housing market is in a downturn. Bidding wars have given way to, first, more days on market, and, now, we are seeing price reductions. The turning point was when the Fed raised interest rates dramatically. At least that’s what I’ve seen in our Spokane area real estate market.
Goldman Sachs predicts a sharp 22% drop in new home sales, and a 17% drop in existing home sales, this year. They predict further declines in 2023. They predict an 8% drop in new home sales, and a 14% drop in existing home sales. A decline in sales usually, but not always, means a decline in demand.
According to Bill McBride, often quoted here, housing is not the target but it is essentially the target of Fed interest rate hikes.
Some of the housing weakness also reflects the reversal of pandemic trends. Those who could work from home preferred less density and lower cost. People left crowded cities. Younger people didn’t want to work in the same house with a roommate, particularly if they could move across the state and have their own place for the same price, if not less. The pandemic boosted demand for second homes as some realized that work-from-home was temporary. These trends have faded and reversed more quickly than some would have expected. Regions that experienced outsized increases and home sales in 2020 and 2021 are now experiencing disproportionate declines this year, according to Goldman Sachs. This probably includes Spokane.
Goldman Sachs expects home price growth to decelerate significantly. They expect home prices to be flat in 2023. They may be being optimistic. Fitch Ratings and Robert Shiller, who both separately predicted the 2008 crash, think a greater than 10% decline in U.S. prices is possible.
Much, of course, depends on what the Fed does and what the Fed signals that they will do in future. That makes things hard to predict.