Home Prices Could Fall Faster, But It's Up To Your Neighbors

Buyers waiting on the sidelines to purchase a home are waiting for two things to happen: A reduction in mortgage interest rates, and a reduction in home values.

While the Federal Reserve’s hikes to their Fed Funds rate will determine where interest rates go, the expected reduction in home values largely relies on their owners.

According to Kieran Clancy, senior US economist at Pantheon Macroeconomics, the rate of decrease in home values might accelerate if previously reticent sellers begin flooding the market with additional inventory in an effort to avoid further price declines.

Read also: Is There Going To Be A Housing Market Crash In 2023?

Clancy emphasized that although home sales and construction have significantly changed to reflect the collapsed demand, home prices still have a long way to go.

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Home prices have just lately begun to trend downward on a monthly basis due to a lack of supply, Clancy said in a note, "but inventory is already creeping higher as many previously reluctant sellers start to worry that their home will fetch a much lower price if they continue to wait to sell."

In October, the number of homes sold in the U.S. fell for the ninth consecutive month as purchasers withdrew from the market due to rising mortgage rates and high prices.

According to a National Association of Realtors survey, sales of existing homes were down in October compared to a year earlier and down 5.9% from September.

There were decreases in every region of the US both month over month and year over year.

That was the longest stretch of dropping sales ever recorded, dating back to 1999, and it continues a trend that started slowing in February.

Sales in October fell to their lowest level since May 2020, during the pandemic lockdowns, when the housing market was at a standstill. Apart from that, sales last month were the lowest since December 2011.

Read also: The Fed Is Crushing The Housing Market, Not Inflation

"That trickle of supply could quickly become a flood, though, increasing the speed — if not the ultimate depth — of the decline in home prices," Clancy said. "We think prices need to drop by about 20% from their spring peaks in order to reach a sustainable level."

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