Down to Business: Bust not expected following drop in housing prices

PHOTOGRAPHER:

Uh-oh. Zillow says my home has lost $7,600 in value, or 2%, over the past 30 days.

My neighbors are in the same boat, down 1.5% to 2% in a month’s time.

I’m not looking to sell, and homes still seem to turn over quickly in my suburban development, but the data give pause.

Industry groups point a finger at higher mortgage rates, sparked by Federal Reserve policies meant to tame inflation. The Fed this year has raised interest rates six times, the last four at a hefty 0.75 percentage point, which trickles down into what we pay on all kinds of loans.

A chart on the website of mortgage agency Freddie Mac shows rates for a 30-year fixed mortgage at 3.22% at the start of the year, hitting a 2022 high of 7.08% on the eve of Veterans Day before settling to 6.58% as of Thanksgiving.

In October, the Greater Capital Association of Realtors in Colonie cited higher mortgage rates in reporting that both closed sales and pending transactions locally had drifted lower in September from August levels.

Likewise, Lawrence Yun, chief economist at the National Association of Realtors, cited the climb in mortgage rates as his group reported a ninth straight monthly drop in existing home sales in October. “More potential homebuyers were squeezed out,” he said.

Since the spring, the Federal Reserve Bank of Dallas, one of 12 regional banks in the U.S. Federal Reserve System, has been warning of a developing bubble due to the pace of house-price appreciation.

This one is different from the housing boom that preceded the 2007-09 global financial crisis and Great Recession, though, a group of Dallas Fed researchers and outside academics wrote in March, citing better household balance sheets and borrowing habits.

But one of those researchers recently suggested that a price correction of 15% to 20% could occur if the “froth” whipped up by pandemic-related migration in the midst of then-low interest rates wasn’t carefully skimmed off.

“[A]fter a housing boom partly driven by pandemic-era FOMO [fear of missing out] beliefs, cooling market participants’ expectations is key to shifting house prices toward a more sustainable path and avoiding the peril of a disorderly market correction,” wrote senior research economist Enrique Martinez-Garcia.

A 20% correction – yikes! – would set me back five years, to the value Zillow gave my home in the summer of 2017, according to my calculations using the company’s handy-dandy online tools.

But my charting also showed the peaks and valleys – the “froth” – that came with COVID-19’s arrival and aftermath, including a big run-up in value this year between February and July that Zillow estimated at a whopping $60,000.

Good thing I take Zillow’s data with a grain a salt, and that Martinez-Garcia closed his analysis by assuring me that a “severe housing bust … isn’t inevitable.”

Otherwise, I might be worried.

Marlene Kennedy is a freelance columnist. Opinions expressed in her column are her own and not necessarily the newspaper’s. Reach her at [email protected]

Categories: Business, Opinion, Opinion

Leave a Reply