Will Home Prices Drop This Year? Forecasts from 7 Housing Authorities
Jeremy Crudup
LAS VEGAS HOME FINANCE
LASVEGASHOMEFINANCE.COM
Nevadans know about hedging bets! We know how to ride out losing streaks! What goes bad gets better, right? What goes up must come down, right? Well, when it comes to rapidly accelerating home prices and the fact we lead the nation, one cannot help but wonder. Month after month we see Las Vegas at the top of the list for the biggest increases in home prices compared to the same month last year. Historically, runaway increases in home prices come down at some point, but it's not likely to happen in 2022. (Spoiler alert: 2023 isn't looking better either.)
Forecasts of home prices from seven leading housing authorities have them flat-lined at best. When temperature checked prices this past December, forecasts ranged from -2.8% to 16% annual price growth, with an average of 6.1% annual price growth by the end of 2022.
The latest round of predictions features new numbers with the same result: a 6.1% growth in price from Q1 2022 to Q1 2023. Goldman Sachs is the lowest forecaster (2.7%) while Zillow is an outlier on the high side of the spectrum at 14.9%. There will always be a disparity between forecasters so average the numbers from more credible agencies.
For homebuyers, this forecast presents a double-edged sword. If you wait to purchase until next year, you could end up paying an additional $26,000 on a home median priced at $428,700 in Q1 2022. And that does not include the rise in mortgage rates.
Homebuyers who purchase sooner rather than later will likely benefit from rapid growth in home equity. A home purchased in Summerlin for $428,700 may be worth upwards of $454,000 in a matter of months, with no increase to the monthly mortgage payment.
Get started on your homebuying goals here.
Q1 2023 Home Price Growth Forecasts
Forecasting home prices - especially during the global pandemic - can be tricky, which accounts for wild swing in available forecasts.
Goldman Sachs sees home price appreciation averaging 2.7% in 2023 while Zillow calls for 14.9% growth from March 2022 to March 2023. Using the Q1 2021 median home sales price of $428,700 that's a difference of more than $52,000. A pretty significant gap!
While homebuyers would prefer the Goldman Sachs forecast and an earlier dip in prices, it’s more likely we’re in for another year of above average price growth. The average of forecasts from seven major housing authorities calls for a growth rate in prices next year of 6.13%.
Due to rising mortgage rates that are cooling demand, most industry forecasters - with the notable exception of Zillow - are calling for price growth to fall throughout the second half of 2022 before levelling off around 3-7% sometime in 2023. According to CoreLogic, annual appreciation hit 20.9% in March 2022, so there's a way to go in the next year.
Here are a few ways to look at the 6.13% annual price growth forecasted for early 2023:
⦁ It's much slower than the record 20.9% price growth from March 2021 to March 2022.
⦁ It's substantially faster than average 4-5% annual appreciation.
⦁ It'll hopefully be faster than the rate of inflation, if the Federal Reserve is successful in combatting it.
Why Are Home Prices Expected to Keep Going Up?
While it's tempting to think the "housing bubble" will pop and to wait for it to happen, those of us at Las Vegas Home Finance know there is no bubble. The reality is that recent home price increases are a result of the imbalance between supply and demand that's been decades in the making. That imbalance is especially painful in our area where growth occurs more rapidly as people stream in from California. While our growth stagnated a bit during the pandemic with a net gain of only 19,000 people from 2020-2021, the reopening has us booming along at pre-pandemic levels. We are, again, a hot destination for Americans as well as new immigrants. Conservative population estimates compiled by UNLV and published by Clark County project an increase of 60,000 permanent residents this year.
Adding to the demand wave is the maturation of millennials - the largest age cohort in the country. They are entering the age of peak homebuying. They're establishing careers, having children, and eager about buying their first homes.
Housing inventory is already suffering from a decade-plus of underbuilding after the housing market crash in the late 2000's. As home values plummeted across the nation, builders slowed single-family home construction to a near-crawl and have been reluctantly ramping it up since. Then, the pandemic bogged down new home construction and made them more expensive.
Annual rate of single-family home completions 2005 to present from St. Louis Fed.
The foundation for steady home price growth in the early 2020's has been in place for more than a decade. The pandemic just exacerbated the supply and demand imbalance even further, leading to historic price growth in 2021.
Some pandemic effects will fade in 2022 resulting in slower price growth. CoreLogic chief economist Frank Nothaft - who has the most bearish forecast of our 7 housing authorities - pointed particularly to faster home building and rising mortgage rates:
"Much of what we've seen in the run-up of home prices over the last year has been the result of a perfect storm of supply and demand pressures. As we move further into 2022, economic factors - such as new home building and a rise in mortgage rates - are in motion to help relieve some of this pressure and steadily temper the rapid home price acceleration seen in 2021."
There's hope that a year of vaccinations and the declining wave of omicron will make more homeowners feel safe enough to sell. Many have been avoiding decision making, but as we get accustomed to living with Covid, things should loosen up.
Will these things be enough to drop home prices in southern Nevada in 2022?
Unfortunately, no. There are no quick fixes for the economic forces driving home prices up. While high prices make homebuying more difficult, they also provide an all-but-guaranteed opportunity to grow your wealth or investment value for several strong years as homes continue to appreciate. People who get in the swim now, win.