Home Prices Will Likely Fall Further

The comments below are an edited and abridged synopsis of an article by Lance Roberts

Home prices have started to correct as interest rates rose sharply in 2022. However, the real problem for home prices is in 2023, as the standoff between sellers and buyers comes to a head.

Home Prices Will Likely Fall Further - BullionBuzz - Nick's Top Six
3d illustration. Houses on a pile of coins and graph with arrows – growth and drop

Since the turn of the century, there have been two housing bubbles, with home prices reaching levels of unaffordability not previously seen in the US. Such was, of course, due to lax lending policies and artificially low interest rates luring financially unstable individuals into buying homes they could not afford. Such is easily seen in the chart included, which shows home equity versus mortgage debt.

At the previous peak in 2007, the equity in people’s homes was around $15 trillion, while mortgage debt stood at $9 trillion. When the bubble popped, home prices collapsed, flipping homeowners’ equity from positive to negative. Home equity is roughly $30 trillion, while mortgage debts have increased to roughly $12 trillion. That is an incredible spread, unlike anything seen previously.

This time, however, the surge in home prices wasn’t due to a surge in lax underwriting by mortgage companies, but rather the infusion of capital directly to households following the Covid-driven shutdown.

Many millennials took that money and jumped into the home-buying frenzy. In many cases, they bought sight unseen or were willing to pay way over the asking price, thereby inflating home prices.

Unfortunately, there will be less demand as the massive flood of money into the housing market from government stimulus reverses.

Up for discussion: At the margin and home prices to fall further.

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