Home affordability in the United States has become unattainable for large segments of the population in 2022 thanks to high mortgage rates, inflation, housing scarcity and prices that were driven up by the historically low home loan rates seen during the first two years of the COVID-19 pandemic.
The housing market this year has been virtually unrecognizable compared to the competitive buying frenzy that preceded it.
While many would-be home buyers and economic analysts have speculated about what will come next for the housing market — and when — one economist believes the nation is in store for a collapse in home prices.
“In one line: Collapse in prices is coming,” wrote Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, told Axios on Tuesday.
Pantheon’s projections estimate that existing home prices will plunge 20% from the peak median of $414,000 in June. That’s a more stark outlook than Goldman Sachs, which predicted U.S. home prices will fall 4% next year as affordability concerns keep demand from buyers in check.
For much of this year, analysts have suggested that a precipitous drop in home prices would not happen suddenly because the lack of home inventory would maintain a high floor. It also is not expected that there will be a surge in defaults that might otherwise add supply to tight U.S. markets.
Despite Clancy’s outlook on home prices, the Federal Housing Finance Agency made a major splash on Tuesday, announcing that maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac will rise to $1,089,300 in 2023. This will be the first time in history that the U.S. government backs home loans exceeding $1 million, though this will be limited to higher-cost markets like New York City and San Francisco.
The decision should make it easier for more Americans to afford a wider range of homes.
After the 30-year-fixed mortgage rate topped 7% for the first time in more than 20 years earlier this fall, the rate has come down slightly. The rate of inflation growth in the U.S. also has slowed, creating some optimism that any looming recession might be mild.
Bank of America CEO Brian Moynihan appeared Tuesday on “CNN This Morning” and predicted that the financial pain in the U.S. would last another two years.
“As we see the rate of inflation slow down – and you’re seeing the rate of inflation growth slow down – you’ll see rates come back down to more the target rate, and you’ll see adjustments come through,” Moynihan said.
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