US housing market price correction to hit ‘coast to coast,’ economist warns

US housing market price correction to hit ‘coast to coast,’ economist warns

• The U.S housing market which has been red hot in the pandemic era is on the verge of an "east-to-west" price correction as the Federal Reserve raises interest rates a leading economist warned this week.

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 Expected price drop It coincides with a surge in mortgage rates which has eroded the purchasing power of potential homeowners. 

The downturn could affect Phoenix and Tucson Arizona as well as North and South Carolina and parts of Florida according to the company's analysis.

• a key city The state that will be affected is Boise Idaho which Moody's has identified as "the most overvalued market in the country."

Speaking at a bipartisan housing policy summit in Washington D.C. Zandi warned of an impending correction in the housing market according to Bloomberg.

Over the past few years cheap mortgage rates a lack of housing inventory and interest spikes during the COVID-19 lockdown have fueled a dramatic surge in home prices -- an expected price increase as the Fed tightens policy and mortgage lending approaches 6%. The trend will slow down.

Mortgage rates are approaching 6% for the first time in years.

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While the Fed's benchmark rate has no direct impact on mortgages all forms of credit and borrowing have become more expensive in anticipation of tighter fiscal conditions. Central banks are raising interest rates sharply to counter the highest level in decades.

Lending Tree senior economist Jacob Channel told the Post that rising interest rates "have caused a slowdown in the housing market".

"Fewer people are getting mortgages homes are on the market longer and some sellers are cutting prices," Channel said.

"Having said that we are going through a period of very hot housing markets in 2020 and 2021 so the current 'correction' is neither an accident nor necessarily a bad thing - especially as it will leave some buyers breathless when are you coming to the room They are looking for housing," the channel added.

Some key markets are expected to experience a housing slowdown.

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The 30-year fixed-loan mortgage rate hit 5.81% this week up from 3.02% in the same week a year ago according to Freddie Mac.

Demand for loan applications from potential buyers or homeowners looking to refinance has hit a 22-year low as mortgage rates rise.

So far rising interest rates have not had a major impact on prices.

The National Association of Realtors said the median existing-home sale price was $407,600 in May up 14.8% from a year ago. Existing-home sales however fell 3.4% for the month -- a sign of weakening demand.

Larry Botel senior real estate advisor at Solomon Partners said housing adjustments are inevitable and "have started to happen".

"Your average home buyer can't pay the same amount they can so the price needs to be adjusted," Botel said. "The same math will continue to benefit the rental market as it continues to be the choice for price-conscious homebuyers."

Fed Chair Jerome Powell recently acknowledged the need for a “reset” in the housing market.

Christopher Sadowski

The drop in house prices would be in line with the Fed's plan to lower prices.

 Shortly after the Fed raised its benchmark interest rate by three-quarters of a percentage point for the first time since 1994 Fed Chairman Jerome Powell acknowledged the rapid changes in the housing market.

"I would say if you're a home buyer or a young person looking to buy you need to recalibrate," Powell said. "We need to get back to a place where supply and demand are reuniting inflation is down again mortgage rates are down again."

While prices in major markets could fall Zandi downplayed the possibility of a full-blown housing market crash drawing parallels with what happened during the subprime mortgage crisis in 2008 when risky borrowing led to a market crash.

 Relatively large price drop is expected low.

Zandi noted that available inventory remains historically tight and this time the vacancy rate is at an all-time low not the all-time high during the last crash. Mortgages are also much more stable than they were a decade ago.

"I just don't see the kind of mortgage defaults and bad sales that are necessary for a big drop in home value. 

That's when you have a lot of foreclosures and a lot of bad sales and you're going to crash," Zandi said. 

"That's just not going to occur. "