Home prices are up 20% year-over-year while housing inventory remains at a record low, but housing experts are downgrading their forecasts for 2022 as rising mortgage rates leave a substantial dent in the rate of home sales, Bill McBride reports in the CalculatedRisk Newsletter. House prices are outpacing average household incomes across the U.S., and many homebuyers are pulling back from making purchases as a result.
Existing home sales are expected to drop gradually throughout the remainder of 2022, particularly as the Fed continues its aggressive approach to cool inflation. Slower sales activity could also mean fewer housing starts for builders after years of unwavering demand in the residential construction sector.
The size of the declines in new and existing home sales, and housing starts, will depend on how much inflation is embedded, and therefore how much the Fed will have to raise rates (and reduce their balance sheet) to control inflation. I don’t expect 50% declines (like in the ‘78 to ‘82 period), but a 20% decline in the annualized sales and starts rates seems possible later this year depending on inflation and mortgage rates.
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