Housing economist says home prices will drop by 10% this year

3 min read

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 get a 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 US 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 within the 6% range.

CUTLER BAY, FLORIDA - APRIL 20: A 'For Sale'  sign advertises a home for sale on April 20, 2023 in Cutler Bay, Florida.  In a report by the National Association of Realtors, existing-home sales edged 2.4% lower in March to a seasonally adjusted annual rate of 4.44 million.  In addition, sales declined 22.0% from one year ago.. (Photo by Joe Raedle/Getty Images)

A ‘For Sale’ sign advertises a home for sale on April 20, 2023 in Cutler Bay, Florida. (Photo by Joe Raedle/Getty Images)

And buyers will also have to contend with stricter lending, predicted by Omodunbi.

“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 become 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.

Builders were “cautiously optimistic” in April, fueled by buyers getting pushed to newly built homes due to limited existing-home listings, according to the National Association of Home Builders. In March, sales of new single-family constructions increased to 683,000 units, a 9.6% rise.

New homes in development in Eagleville, Pa., Friday, April 28, 2023. (AP Photo/Matt Rourke)

New homes in development in Eagleville, Pa., Friday, April 28, 2023. (AP Photo/Matt Rourke)

“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 home ownership,” 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 coming 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).

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