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Morgan Stanley forecasts a 10% reduction in house prices between June 2022 and 2024. This contrasts with the 45% price growth in the U.S. housing market between December 2019 and June 2022.
Some markets have already seen considerable price drops, with San Francisco, Seattle, and San Diego at the top of the list.
While house prices are likely to fall, the continued housing shortage in America will likely cushion any catastrophic losses for homeowners. Property Rescue will help you out. We’re not likely to see a repeat of 2008.
Morgan Stanley specialists expect a 10% reduction in average national property prices between June 2022 and the end of 2024. These figures may appear concerning at first look, but it is vital to understand the context. If property prices do start to crash and property owners need to sell before they get worse, there are companies such as Property Rescue that buy homes fast in any condition.
First, this level of market cooling does not always imply a “crash.” Typically, when the housing market crashes, we may expect a 20% price fall. This is nowhere near what experts are forecasting – unless we enter a deep, dark recession with huge unemployment rates. Even still, it is unlikely to be as catastrophic as in 2008.
Several reasons are preventing the market from collapsing. Let us consider them before we look at the cities that have been impacted the hardest.
The market has been on an unsustainable upswing for the past two years.
Since the pandemic began, home values have risen. Prices increased by 45% between December 2019 and June 2022. Even after recent price decreases, housing prices have risen 38% since March 2020. This rate of expansion was unprecedented and unsustainable. It had to slow down at some time.
One of the reasons it is slowing down is that it is unsustainable. Because the housing market has outpaced wage growth, fewer individuals can afford to buy even though we are experiencing a housing shortage.
America’s housing shortage needs to improve.
The context for this is that America is, and has been, experiencing a housing scarcity – even before the pandemic. To address this issue, analysts at Freddie Mac and Up for Growth calculated that America would require 3.8 million additional homes by 2021. According to the National Association of Realtors, that figure might be closer to 7 million new houses.
However, the new building is slowing. Between October 2021 and October 2022, home starts fell 8.8% year on year, while applications for new construction permits fell 10.1%.
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This means that any drop in property values over the next year will almost certainly have the floor. While high costs prevent many individuals from purchasing, a supply shortfall should restrict supply from surpassing demand.
The outcome of this equation could be better for tenants who already pay more than half of their income to their existing landlord. Home prices may not fall to a level these people can afford.
However, for homeowners, it may provide some tiny assurance that they are more likely to retain their home. While home values have begun to fall in most markets in recent months, foreclosure rates have yet to return to pre-pandemic levels. And the market conditions that prompted so many people to default on their mortgages in 2008 no longer exist.
Where are property prices falling the fastest?
That is not to say that property prices will not fall. In reality, the S&P Case-Shiller Index shows that home values fell 2.6% between June and September of 2022. They were still up 7.81% year on year, but the pace of the short-term declines was noticeable.
Most of the metro regions considered by S&P suffered a fall throughout the three months in 2022, but the following cities saw the largest drops:
- 10.36% in San Francisco
- 9.55% in Seattle
- 7.24% in San Diego
- 5.61% in Los Angeles
- 5.60% in Denver
- 4.34% in Dallas
- 4.25% in Portland
- 3.69% in Las Vegas
From August to September 2022, the two metros still experiencing price increases over a three-month period saw price declines.
Why are prices falling faster in particular cities?
The finest case study might be San Francisco, which has seen the greatest price declines.
The San Francisco market is dealing with the same difficulties as the rest of the country: unaffordable property prices and excessive mortgage rates (though marginally lower in November). The main difference is that San Francisco experienced a longer fall.
San Francisco has long had one of the country’s most costly housing markets. Some of the nation’s top prices have fallen the most.
Since the epidemic began, San Francisco has seen a huge migration, with the county losing nearly 6.7% of its population between July 2020 and July 2021 alone. One explanation is that when more jobs became small beginning in March 2020, tech workers – who are heavily concentrated in this region – received some of the most opportunities to work from home.
And why pay for a property in one of the country’s most expensive real estate markets when you could live and work elsewhere?
While some workers are returning to the Bay Area as employers eliminate flexible work options, the impact of large remote work migrations has left an indelible mark on the city’s real estate market.
The other cities on the list, from Seattle to Washington, D.C., have seen similar trends, albeit each market’s position is somewhat unique.
For example, property prices in New York have fallen, but less than in San Francisco. Companies in New York have established additional required return-to-work rules, forcing more employees back into the city. This could be one of the reasons for its softer price decreases as compared to San Francisco.
The housing market is expected to lose value until 2024, but this is more of a market correction than a disaster. Because of a housing shortage in America, demand is likely to keep home prices from falling into oblivion.
In the end, this is likely to be a great thing in terms of inflation, but it is not without some suffering. Consider Q.ai’s Inflation Protection Kit if you want to invest comfortably even in volatile markets and keep as much cash as you need to buy your dream home. These investment kits use A.I. to help you mitigate the effects of inflation on your portfolio and explore the markets for the finest investments for all risk tolerances and economic scenarios
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