Fed Chairman Jerome Powell was candid with reporters last month: The U.S. housing market, he said, was in a “difficult to correct”.
This housing fix—which started months ago— only gained momentum in the weeks following Powell’s statement. From Wednesday, mortgage purchase requests are down 38.4% year over year.
Historically speaking, these so-called housing fixes generally see housing activity, as home sales, plummet long before house prices begin to correct. This historical fact explains why so many industry insiders are puzzled right now: Even though the housing correction began just a few months ago, we are already seeing steep declines in house prices in many markets.
Thursday, Fortune learned that the house price correction has spread to more markets. It is according to Zillow Home Value Index (ZHVI), which tracks data from 896 regional housing markets in the United States.
Let’s take a look at the data.
Of the nation’s 896 largest real estate markets, 121 saw house prices decline between May and September. It is from 117 Markets That Showed Lower Home Prices Between May and August.
The markets hardest hit by the house price correction fall into two groups.
The first group includes sparkling markets such as Austin (down 8.23%), Boise (down 6.35%), Colorado Springs (down 4.13%) and Phoenix (down 6.6%). These markets, according to Moody’s Analytics, all became “significantly overvalued” during the pandemic housing boom. It’s starting to change. Shortly after soaring mortgage rates poured cold water on these markets, prices began to fall.
The second group includes high-cost tech hubs like San Francisco (down 7.88%), San Jose (down 10.59%) and Seattle (3.93%). These markets have been hit with a double whammy: not only are their high-end real estate markets more rate sensitive, but so are their tech sectors.
When Fortune coined the term Pandemic Housing Boom, we did so knowing that if the boom ended in a collapse, we had to rename it a Pandemic housing bubble or the pandemic housing crisis. Ourselves set a criterion: Any market that experiences a decline of more than 10% from peak to trough gets the Pandemic Housing Bubble label.
So far, only San Jose (down 10.59%) has received our Pandemic Housing Bubble label. However, other markets are approaching. A total of 19 regional real estate markets saw house prices fall by more than 5% between May and September. This includes Western markets like Santa Cruz, CA (down 7.51%) and Boulder (down 7.46%).
Where is the current house price correction headed? Companies like Goldman Sachs and Moody’s Analytics predict that in the coming years, domestic home prices will fall by around 10%. For perspective, from peak to trough, home prices in the United States fell 27% between 2006 and 2012.
Of course, if national house prices actually go down 10% in the coming years, that probably mean that some markets are down 20%, 25%, even 30%. The main suspects would likely be the very places where house prices are already falling the fastest.
For one thing, numerically, some of these house price corrections are quite large. On the other hand, even crisis markets are still rising since the start of the pandemic.
Look no further than Austin. Over the past four months, home values have fallen 8.23% in Austin. However, market house prices remain up 60.93% since the start of the pandemic.
Put simply: the pandemic housing crisis has a long way to go if it is going to put a damper on Pandemic real estate boom earnings.
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