The USA's Ultimate Housing Collapse Began In July 2022
Moody's makes conservative estimates of housing prices going from 20% down to over 72% down, depending in part on where you live.
Is America on the verge of a house price collapse? Prices could crash by up to 20% and homes are overvalued by as much as 72%, expert warns
Boise, Idaho; Charlotte, North Carolina and Austin, Texas were the three most overvalued areas in the United States, according to Moody's Analytics
Moody's found that found that 183 of the nation's 413 largest regional housing markets are 'overvalued' by more than 25 percent
If a recession hits, house prices in those 183 regions could plummet by as much as 20 percent, Moody's predicted
If there is not a recession, they will still fall 10-15 percent, the analysts believe - echoing other experts
The housing inventory is at its highest level since April 2009, as sellers struggle to get rid of their property because mortgages have become more expensive
Mortgage rates have nearly doubled since January, rising to 5.13 percent for a 30-year loan as of last week, according to Freddie Mac
By HARRIET ALEXANDER FOR DAILYMAIL.COM
PUBLISHED: 21:05 EDT, 26 August 2022 | UPDATED: 02:21 EDT, 27 August 2022
House prices could fall by up to 20 percent next year if there's a recession, experts warn - and property in some areas of the country is overvalued by as much as 72 percent.
Mark Zandi, chief economist for Moody's Analytics, was pessimistic about the housing market in May, but he has now made his forecasts even more bleak, Fortune reported on Wednesday.
It comes amid ongoing arguments over whether the US is already in a recession, with the country recording two consecutive quarters of negative growth - the traditional definition of such a slump.
The news is particularly dire for people who have purchased homes in what Fortune terms 'bubbly' markets, with Boise in Idaho, Charlotte in North Carolina and Austin in Texas all named the most overvalued markets.
But a total of 180 other areas across the US have property deemed overvalued, many of them highly-desirable.
They include LA, Orlando, Seattle and Indianapolis, where property is all estimated to be 30 percent overvalued.
Homes in Houston are around 34.5 per cent overvalued, while properties in Montana are 25 per cent overvalued.
Picturesque Bend in Oregon - regularly voted one of the United States' best places to live - has homes that are 43.8 per cent overvalued, according to Moody's, with Billings in Montana 25 per cent overvalued.
It comes weeks after the US Central Bank hiked the benchmark interest rate to 2.5 per cent, with another increase to 3.4 per cent expected by the end of the year as the Fed tries to tame inflation.
Those interest rate hikes are expected to plunge the US into recession, and will also likely lower the cost of property as it becomes too expensive for many to get a mortgage, cratering demand.
The most over-valued areas are largely in the Mountain West and Sunbelt.
Boise, Idaho - which saw house prices skyrocket during the pandemic, as droves swapped pricey cities in the Bay Area and wider California for the buzzing Idaho city - is the most overvalued area, Zandi said.
Boise, where the current average house is worth $526,050 according to Zillow, is almost 72 percent overvalued, although a recession is only expected to wipe 20 percent off the prices of homes at most.
Charlotte in North Carolina is the second most overvalued, at 66 percent, with Austin third place at 61 percent.
Charlotte, North Carolina, is 66 percent overvalued, with the average home at $406,137 at the moment - and Austin, Texas is 61 percent overvalued, at an average of $661,337.
Flagstaff, Arizona ($668,845), is overvalued by 61 percent, while Nashville, Tennessee ($460,447) is 54 percent overvalued and Miami ($552,082) is 34 percent.
It is unclear why those overvalued areas are expected to see a maximum of 20 percent wiped off house prices, rather than the full amount experts believe they're overvalued by.
Only a handful of places were considered undervalued - the most undervalued being Decatur, Illinois, where the average house is $92,129, undervalued at 6 percent.
Montgomery, Alabama ($135,742) is 2.6 percent undervalued and Grant's Pass, Oregon ($418,440) is 3.1 percent.
The housing inventory is at its highest level since April 2009, as sellers struggle to get rid of their property because mortgages have become more expensive, and other financial pressures - high gas prices, soaring costs of groceries - continue to be felt.
Mortgage rates have nearly doubled since January, rising to 5.13 percent for a 30-year loan as of last week, according to Freddie Mac.
The Fed's effort to bring down inflation by slowing spending has caused a marked slowdown of home sales.
Moody's Analytics assesses every quarter whether local economic fundamentals, including local income levels, can support local house prices.
Their latest data, shared with Fortune, found that 183 of the nation's 413 largest regional housing markets are 'overvalued' by more than 25 percent.
And nationwide, housing prices will also likely decline, Zandi felt.
He predicts U.S. house prices across the country will decline over the next 12 months between zero and -5 percent: a more pessimistic forecast than in June, when Moody's Analytics expected U.S. house prices to remain unchanged.
If the U.S. enters a recession, it will be worse: house prices will fall between 5 and 10 percent.
In the 183 overvalued areas, houses could fall 15-20 percent in a recession.
Moody's Analytics is not an outlier.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said on Tuesday that the outlook for housing sales is even more grim than the Fed has said, and the 'worst is yet to come' for home prices.
He tweeted on Tuesday that he had been 'bearish as hell about housing for months' - meaning that he predicted a significant slump in the market.
A bear market is one where prices are falling, and people are selling.
He attached a graph showing the dramatic downturn, and said: 'Well, I'm feeling vindicated.'
Sales of new single-family homes hit their lowest level in nearly seven years in July, falling 12.6 percent to a seasonally adjusted annual rate of 511,000.
Fitch Ratings said it envisions US home prices dropping by up to 15 percent, and Robert Shiller, an economist who correctly predicted the 2008 housing crash, thinks there is a good chance home prices could fall by more than 10 percent.
A study published by real estate brokerage Redfin on Monday found that a high share of home sellers dropped their asking price in July, particularly in former pandemic boomtowns.
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