Big banks and other investment firms all agree the U.S. housing market is in the middle of a major slowdown — but they vary when it comes to their forecasts on what this market correction will mean for U.S. home prices.
However, as the Federal Reserve’s fight with inflation persists and high mortgage rates tighten their stranglehold on the housing market, there’s a growing number of firms revising their forecasts with increasingly pessimistic outlooks.
Some are predicting negative, year-over-year U.S. home price declines in 2023. Some don’t go so far, expecting home price appreciation to still stay at least slightly positive.
Here’s a breakdown:
Morgan Stanley: Home prices will fall 7%
The banking giant Morgan Stanley became one of the most recent to join the chorus of housing bears. It’s predicting U.S. home prices will fall 7% by the end of 2023.
As mortgage rates have topped 7% and stayed high with no real end in sight, that’s led Morgan Stanley’s housing researchers to revise their forecasts, which originally predicted sales growth in 2023.
“In this world, we do think that sales are going to fall steeper than we thought,” said Jim Egan, Morgan Stanley’s co-head of U.S. Securitized Products Research, on the bank’s housing podcast.
Now, they’re predicting year-over-year home price growth will tip negative in 2023 and finish out the year at -3%.
“We had originally been forecasting a return to growth in 2023, but the change to the forecast that’s getting the most attention is that we went from plus 3% year over year growth in December of 2023 to -3% year over year growth by the end of next year,” Egan said.
“So if I buy a house today, it might be lower a year from now? That seems worrisome,” said Jay Bacow, Egan’s fellow co-head.
“Yes,” Egan replied, but added there are positives and negatives to that forecast. While that would put U.S. home prices down 7% from their current levels, “the positive headline is that even with that decrease in home prices from today, that only brings us back to January of 2022. That’s 32% above where they were in March of 2020.”
Goldman Sachs: Home prices poised to fall 5% to 10%
Goldman Sachs predicted in August the housing downturn would have “further to fall” in 2023, expecting home price growth to stall completely and average 0% in 2023. Then, Goldman researchers’ outlook worsened even more this month.
As mortgage rates have ticked up, Goldman Sachs researchers’ G-10 home price model is now showing prices will decline by about 5% to 10% from its peak in the U.S, according to a post on the investment bank’s website titled “Why Home Prices are Poised to Fall.”
But again, remember to put those predicted dips into perspective.
“While the drop in home prices may seem large, those declines are expected to only partly offset the jump in housing prices that happened after February 2020,” the post states, noting U.S. home prices soared 42% since then. “But there are reasons to think the declines could be substantial: The housing market has already fallen 7% in Canada and Sweden in just six months, for example, and by 11% in New Zealand in eight months.”
Goldman researchers are also predicting home prices will fall 15% in Canada and almost 5% in the U.K.
Goldman Sachs economists also say there are “risks that housing markets could decline more than their model suggests,” in part because its outlook has “deteriorated sharply, based on signals from home price momentum and housing affordability.”
Moody’s Analytics: Home prices will fall 5% to 10% — more if recession hits
In August, Moody’s Analytics also revised its U.S. housing market forecast downward — and again in September.
Peak-to-trough, Moody’s currently expects U.S. home prices to fall between 5% and 10% — but the firm is also eyeing what it calls significantly “overvalued” housing markets, which it’s forecasting to see drops between 10% and 15%, Fortune reported.
Moody’s also contemplates what could happen if a recession hits the national economy. If it does, Moody’s predicts U.S. home prices to decline 10% to 15%, and in significantly “overvalued” housing markets, that drop would be 20% to 25%.
Moody’s says 210 housing markets are vulnerable to 20% to 25% drops, according to Fortune. Included on that list? Cities across the country, as well as quite a few metros concentrated in the West. To name a few: Boise, Las Vegas, Flagstaff and Phoenix in Arizona, and metros in Utah including Ogden and Salt Lake City.
Wells Fargo: Home prices will fall over 5%
In a note published last week, Wells Fargo economists Charlie Dougherty and Patrick Barley said they weren’t surprised by Federal Reserve Chairman Jerome Powell’s comments that the U.S. housing market will likely need to go through a “difficult correction.”
“For much of the past two years, housing demand has greatly outstripped supply, leading to a rise in home prices far exceeding income growth,” they wrote.
That housing “correction is already well underway,” they added, pointing to how rapidly existing home sales, new home sales, builder confidence and single-family construction “have all registered acute declines” amid higher mortgage rates.
Now, “further drops are on the horizon,” they said
“We now look for home prices to register year-over-year declines in 2023, with the national median existing single-family home price expected to fall 5.5% during the year,” the Wells Fargo economists wrote.
They also have their eyes on the Mountain West, or “previously white-hot markets” where home prices accelerated the fastest and highest. There, home prices are “vulnerable to a disproportionate swing to the downside.”
However, even with that correction, they predict prices will remain above average levels seen in 2021.
“Low supply and strong demand will limit the extent home prices depreciate,” they wrote. “If our forecast for Fed rate cuts is realized, mortgage rates are likely to fall slightly, which will spur an improvement in sales activity and reignite home price appreciation heading into 2024.”
‘Poison’ Ivy Zelman: Home prices will fall 4% in 2023 and another 5% in 2024
“We’re just in early innings,” Ivy Zelman, of Zelman & Associates, said on CNBC this summer, calling housing price cuts inevitable.
Zelman is an analyst who housing bulls nicknamed “Poison Ivy” before she called the 2005 housing market top and the ensuing bubble bust. These days, her models predict U.S. home prices will fall not just by 4% in 2023, but another 5% in 2024.
Her predictions amount to a nearly 9% drop in U.S. home prices between this year and 2024.
“Historically speaking, that would make this one of the three sharpest home price drops ever recorded. The other two being those from the Great Depression and Great Recession,” Fortune reported, noting U.S. home prices fell 27% from peak to trough between 2006 and 2012.
Fitch Ratings: ‘Severe’ housing downturn possible, ‘but not yet probable’
In August, the credit rating agency Fitch Ratings offered its own housing forecast, saying the likelihood of a “severe” housing downturn has increased.
“However, our rating case scenario provides for a more moderate pullback that includes a mid-single-digit decline in housing activity in 2023, and further pressure in 2024,” the post states. “Although we recently affirmed the ratings and Stable Outlooks for our U.S. homebuilder portfolio, ratings could face pressure under a more pronounced downturn scenario that would likely include housing activity falling roughly 30%, or more, over a multi-year period and 10% to 15% declines in home prices.”
Capital Economics: Home prices will fall 8%
Sam Hall, property economist for Capital Economics, wrote in a note published last week that the firm has revised its forecast.
“Against a backdrop of higher mortgage rates, a weaker economy and prices falling earlier than expected, we have cut our forecast and now expect a peak-to-trough fall in house prices of 8%, down from our previous view that prices would drop by 5%. That is markedly below consensus, which is still a small rise next year.”
Zillow: Slight rise in home prices in 2023
Zillow is among those predicting a single-digit rise in home prices next year, though it also expects home value growth to continue to slow.
Zillow is forecasting a slight 1.2% home value growth through August 2023, a downward revision from an earlier forecast of 2.4% home value growth.
“The downward revisions come as a result of recent housing market indicators continuing to show buyers hanging back while affordability obstacles remain as high as they’ve been in recent memory,” Zillow researchers wrote in a Sept. 19 post.
CoreLogic: Home prices will be up 3.2%
As of August, CoreLogic notes home prices nationwide increased 13.5% compared to August of 2021. Month to month, they declined by a slight 0.7% in August compared to July of this year.
For its national forecast, CoreLogic is predicting home prices will flatline on a month-over-month basis from August to September, but on a year-over-year basis will still be up by 3.2% from August of this year to August of 2023.
Fannie Mae: Home price growth will ‘moderate’
Fannie Mae has said economic indicators are pointing to a “likely recession” in 2023. Meanwhile, the Fed’s fight with inflation is having the Fed’s “desired effect on housing,” said Doug Duncan, Fannie Mae senior vice president and chief economist.
“We expect the slowdown in housing to continue through 2023 as affordability constraints mount for potential homebuyers, and considering, too, that refinance activity has been significantly curtailed by the rise in mortgage rates,” Duncan said.
Fannie Mae, however, has not gone so far as to predict negative year-over-year home price declines next year.