The real estate market hasn’t experienced a climate like this for a long time – but exactly when is a big question. Looking at existing home sales, things haven’t been this bad since 2010, the height of the Great Recession, as a 15% plunge in September took transactions to a 13-year low, a “deep standstill.” , which Zillow warned about again in the spring. Other economists like Mark Fleming of First American and Jeseo Park of Bank of America Research see conditions reminiscent of the “housing recession” of the 1980s. Taking note of the market temperature earlier this week, Morgan Stanley saw more trouble ahead for homebuyers: a nationwide home price jump of up to 5% and a reversal of its previous call for price cuts amid high mortgage rates. Zillow takes the opposite approach.
After declaring in February that U.S. home prices had bottomed, Zillow economists had raised their home price forecast each month through August. At that time, they predicted that house prices would rise by 6.5% over the next 12 months. However, last month they issued a downward revision. And this month they did it again.
Zillow economists predicted this week that home prices would rise 2.1% between September 2023 and September 2024. This compares to its forecast last month that house prices would rise 4.9% between August 2023 and August 2024.
“Zillow’s forecast for the nation’s typical home value was revised downward this month due to an unusual month-over-month decline in September and mortgage rates rising higher,” they wrote this week.
Zillow economists have come to terms with the likelihood that a robust labor market will mean a longer-than-expected period of elevated interest rates. With the tightening of interest rates, the real estate market has lost some momentum.
“Increased mortgage rates are weighing on new listings as ‘locked-in’ homeowners largely choose to maintain the relatively low monthly payment on their current home,” Zillow economists write.
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They now expect national house prices to rise 3.3% in 2023, compared to the 4.3% they forecast last month.
“While many homebuyers are overpriced or have limited resources to afford, there are enough active buyers to maintain competitive pressure for the few homes available for sale,” they noted.
Morgan Stanley, in turn, recently changed its forecast for 2023 more dramatically. While analysts had previously expected house prices to fall for the year, they now expect prices could rise by up to 5%. The turnaround, noted in a research note earlier this week, comes as mortgage rates continue to rise.
According to Mortgage News Daily, the 30-year fixed mortgage rate hit 8% this week. Interest rates haven’t been this high in decades.
“It is likely that they will remain at these levels in the final months of the year, especially if the Fed raises rates again before the end of the year,” Mark Fleming, chief economist at Fortune 500 financial services firm First American, told Fortune this week .
The Fed is keeping the possibility of further interest rate hikes open. Andrew Levin, a former senior Fed adviser and now a professor at Dartmouth College, recently told Bloomberg: “There is a very significant risk that they will have to do more.”
This story was originally published on Fortune.com