Housing values will drop by double digits this year, one expert is predicting, as tighter lending requirements choke off demand.
“So we are forecasting that we are going to see home prices to drop 10% decline in house prices this year,” Abbey Omodunbi, PNC Bank Senior Economist, told Yahoo Finance Live (video above). “There will be more of a balance in the housing market. There will be less demand and more supply. And that will contribute to the decline in house prices.”
Housing prices have come down since hitting their pandemic highs in the second quarter of last year. The U.S. median home price in March decreased 3.3% year over year to $400,706, according to Redfin, marking an 8% drop from peak pricing in May 2022.
However, the recent downturn in home prices has not been enough to offset high borrowing costs. Many first-time homebuyers still face affordability issues due to elevated home prices and mortgage rates still in the 6% range.
And buyers will also have to contend with stricter lending, Omodunbi predicted.
“Financial conditions will likely tighten in 2023,” he said. “We do expect the Fed to raise the Fed funds rate by a quarter of a percentage point going into the meeting in two weeks. And also after the bank failures in March, many banks are likely to be more cautious. So we might see some tighter lending standards.”
But for some buyers who remain in the market, they may find themselves at an advantage with softer prices, less competition, and potentially more supply.
“So we’re going to see a lot of new construction that’s going to come online, and that’s potentially going to be beneficial for first-time homeowners,” Omodunbi explained.
“A lack of resale inventory combined with many builders offering price incentives helped to push new home sales higher in March,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) said in a press release published earlier this week.
This week, PulteGroup also reported quarterly results that topped expectations as buyers reentering the housing market flocked to new homes.
“Within an evolving macro environment, consumers across all buyer segments and price points continue to demonstrate a strong desire for homeownership,” PulteGroup President and CEO Ryan Marshall said in the press release.
Omodunbi offered a similarly rosy view.
“I think that as inflation moderates and supply chains continue to improve, we’re going to see more construction come online,” he said, “which will be favorable to new homeowners.”
Rebecca is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA). by Rebecca Chen·Reporter
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