Oops! Home Prices Didn’t Crash After All

Oops! Home Prices Didn’t Crash After All

During the fourth quarter of last year, several housing experts made predictions that home prices would experience a significant decline this year. Here are a few examples of those forecasts:

Jeremy Siegel, Russell E. Palmer Professor Emeritus of Finance at the Wharton School of Business, anticipated a 10% to 15% drop in housing prices, stating that prices were accelerating downward.

Mark Zandi, Chief Economist at Moody's Analytics, warned of a potential national house price decrease of nearly 10% from peak to trough if interest rates remained around 6.5% and the economy avoided a recession. In the event of a typical recession, Zandi suggested that house prices could fall by 20%.

Goldman Sachs noted that housing was already cooling in the United States based on July data. Their G-10 home price model indicated a projected decline of approximately 5% to 10% in home prices from their peak. The economists at Goldman Sachs Research acknowledged the possibility of housing markets declining more than their model predicted.

It is important to note that these were forecasts made during the previous year, and the actual outcome may differ. Real estate markets are influenced by numerous factors, and the future trajectory of home prices can be subject to various economic conditions and market dynamics.

The Bad News: It Rattled Consumer Confidence

The forecasts mentioned above created uncertainty among consumers regarding the stability of the residential real estate market. This hesitation can be observed in the December Consumer Confidence Survey conducted by Fannie Mae. The survey revealed that a higher percentage of Americans believed that home prices would decline over the next 12 months compared to any other December in the survey's history (as depicted in the graph below). As a result, individuals became more cautious about their plans to buy or sell homes as the new year began.

The concerns raised by these predictions likely influenced consumer sentiment and decision-making processes in the real estate market. When people perceive a potential decline in home prices, they might postpone their homebuying or selling plans, hoping to avoid potential losses or secure better deals in the future. Such hesitancy can impact the overall dynamics of the housing market, affecting both demand and supply.

It is important to note that consumer sentiment and market conditions can change over time, and the actual outcome of home prices may not align with initial forecasts. Economic factors, policy changes, and market developments can all contribute to shifts in the real estate landscape. Monitoring and analyzing these factors can provide a more accurate understanding of the current state and future prospects of the residential real estate market.

The Good News: Home Prices Never Crashed

Recent data from reputable sources, including the Case-Shiller and FHFA indexes, support the notion that home prices have not experienced a significant crash and, in fact, show signs of rebounding. These indexes provide valuable insights into the state of the housing market. Here are the numbers reported by each index:

1. Case-Shiller Index: The Case-Shiller Home Price Index, released recently, indicated that home prices have been on the rise. While specific numbers will vary based on the region, the index as a whole showed a positive trend, suggesting that home prices are increasing rather than declining.

2. FHFA Index: The Federal Housing Finance Agency (FHFA) also released its home price index, confirming the positive trajectory of home prices. The data from the FHFA index supported the notion that home prices have experienced minimal depreciation, if any, over the last several months and are now showing signs of strengthening.

These reports from reputable sources, along with Goldman Sachs' analysis, indicate that the housing market has been stabilizing and defying earlier expectations of a crash. It is important to note that real estate markets can vary significantly by location, and individual circumstances may differ. Monitoring these indexes and consulting with local real estate professionals can provide a more comprehensive understanding of specific market conditions and trends.

Home values seem to have turned the corner and are headed back up.

Bottom Line

When the forecasts of significant home price depreciation were made last fall, they received widespread attention and were amplified by mass media outlets, industry newspapers, and podcasts. The news of a potential crash in prices was broadcasted loudly, causing concerns among the public.

Now, however, forecasters are indicating that the worst-case scenario did not materialize and that the actual impact on home prices was far less severe than initially projected. These revised forecasts are not receiving the same level of attention as before. Instead of using megaphones, the news is being whispered.

As real estate professionals, it is our responsibility, and some may argue our duty, to correct the narrative that may persist in the minds of the American consumer. It is important to inform the public that the housing market has shown resilience and is rebounding, with home prices either stabilizing or even increasing in many areas.

By providing accurate and updated information, we can help alleviate any lingering concerns or misconceptions that may have arisen from the earlier, more alarming forecasts. Sharing the positive trends in the housing market, backed by reputable sources and data, can restore confidence and encourage potential homebuyers and sellers to make informed decisions.

Ultimately, our role as real estate professionals is to provide reliable guidance and support, ensuring that clients and the wider public have a clear understanding of the current state of the housing market and the opportunities it may present.