US housing prices are falling at the biggest since the 2008 financial crisis. Has this record-breaking growth, which lasted for more than two years, come to an abrupt end?
Comprehensive data shows that with the aggressive rate hike of Federal Reserve , the rate hike of , significantly boosting the interest rate of housing loans, the monthly housing price level in the United States has continued to fall.
In the view of Chen Yuewu, managing partner of Golden Eagle Real Estate Investment Company in the United States, the truth still exists in the data details. Taking the data recently released by the S&P Case-Schiller Index as an example, from June to July, housing prices in California and Seattle fell significantly month-on-month, but cities in the southern United States still maintained growth.
He told the First Financial reporter: "Currently, the real estate inventory in the southern U.S. has increased from about 2 months to about 3 months, which is still far below the 6-month equilibrium point. The situation of supply and demand in the US real estate market has not fundamentally changed, and this is even more so in the long run."
"Currently, the market expects the Federal Reserve to start a interest rate cut cycle in 2024, and the US real estate market will resume rapid growth by then." He said.
The Federal Reserve's interest rate hike "caused the trouble"?
Data released by the Economic Research Department of the Federal Reserve Bank of St. Louis, the average housing price in the United States has begun to soar since the second quarter of 2020. As of the second quarter of 2022, the cumulative increase reached 40.05%. The bank has not released third-quarter data yet. It can be seen from the monthly reports of other institutions that the growth rate of US housing prices slowed down in the third quarter. The latest mortgage monitoring report from mortgage analysis firm Black Knight shows that the median U.S. home prices fell by 0.98% from July to August. Revised data showed that the decline was even greater in June-July, at 1.05%. "After more than two years of record growth, these data represent a significant pullback for two consecutive months," said Ben Graboske, president of Black Knight Data Analytics. "In the winter of 2008, after the Lehman Brothers bankruptcy and financial crisis, the monthly price declines in house prices were higher than what we saw in July and August." He added, however, the current price decline is already the biggest drop since January 2009, with the median U.S. housing prices down 2% compared to the peak in June this year.
During the epidemic, the US real estate market is hot, driven by low inventory and low interest rates. But demand has cooled significantly as the Federal Reserve raises interest rates to curb inflation , mortgage rates soar.
As of October 6, according to Fannie Mai data, the interest rate for 30-year mortgage loans in the United States is 6.66%, and its next update time is October 15.
According to data from the Mortgage News Daily, which tracks loan interest rates in real time, the 30-year mortgage interest rate has climbed to more than 7% last weekend and has remained above 7% for several consecutive days. As of the 12th, the reporter inquired that the interest rate has reached 7.728%.
mortgage interest rates have risen sharply, coupled with the fact that house prices are still far above normal, leading potential buyers to face affordability issues. Take the American median income households as an example. To buy a medium-priced home, pay a 20% down payment and have a 30-year mortgage, which means that the buyer spends 38.2% of his monthly income on repaying the mortgage. Black Knight believes that this "expensive number" makes the current U.S. housing market the hardest-to-be-afford market for buyers since 1984, which has led to many potential buyers being pushed off the market.
Can the spring of 2023 recover
Graboske believes that many sellers may take a wait-and-see attitude towards the market and hope that the situation in the spring will improve. It should be noted that even though there has been a recent decline, U.S. house prices were still 12.1% higher than a year ago.
The July S&P Keith Schiller Index released recently also showed that the month-on-month cooling rate was the largest in history, but the overall housing price level in the United States is still higher than a year ago.
Chen Yuewu told the First Financial reporter that July data showed that the growth rate of the average house price in the United States further dropped from 20% in April, 19% in May, and 18% in June, to 16%. "The trend of slowing growth will continue, and the growth rate is expected to drop to 5% to 10% in December."
"Take the growth rate of housing prices in areas such as North Carolina and Atlanta as an example. By the end of this year, it will drop from around 25% in June to 10%~15%, and about 5% in 2023." He told reporters, however, according to Zillow estimates, the average real estate price in the United States will still increase by 1.2% from August this year to August next year, and another institution CoreLogic is expected to be 3.2%.
In his opinion, the trend of rising housing prices in the United States has not changed.
", California, , major cities, and high-priced housing prices in high-priced areas such as Seattle have seen a significant decline, but housing prices in the southern United States are still growing, especially some starting real estate, although the growth rate has slowed down significantly." Chen Yuewu believes that the result of the Federal Reserve's interest rate hike has suppressed the demand for real estate in the short term and reduced the speed of housing prices, but will not have a substantial impact in the long run. The fundamental reason is still the supply and demand relationship.
He believes that as US inflation is controlled and the US economy enters recession under the blow of high interest rates, the Federal Reserve will change its policy, stop raising interest rates, and then start cutting interest rates to stimulate economic recovery.
