After 2 stormy years of ‘moonshot’ house prices, don’t hold out hope for a major correction. Why COVID-era real estate values ​​may be here to stay.

There is hope for first-time buyers looking to enter the U.S. housing market, but observers say they will have to be patient.

After soaring home prices for two years during the COVID-19 pandemic, the housing market is finally showing signs of cooling – in terms of demand and sales, if not persistently high prices – partly due to the rise interest rates, high prices due to a shortage of quality inventory, inflation impacting the cost of raw materials and a volatile stock market. Sales of new homes fell in April for the fourth consecutive month, to the lowest level since the start of the pandemic.

Affordability remains a challenge. The median home sale price was $428,700 in the first quarter of 2022, up 30% from $329,000 in the first quarter of 2020. Mortgage rates jumped 2.75% in the fall for a 30 years fixed at more than 5.25%. Redfin RDFN estimates that 8.2% of homes are worth $1 million or more, equivalent to 6 million properties, compared to 3.5 million homes, or 4.8% of the country’s housing stock, two years before.

Pandemic-era prices, as they currently stand, may be here to stay. “It’s entirely possible that prices will stabilize and just not change much over the next few years,” said Greg McBride, chief financial analyst at personal finance site Bankrate.com. “It would benefit first-time buyers by allowing their income to ‘catch up’ somewhat with the cost of home ownership, but it would take place over a 2-4 year period, not the next 2-4 months. .”

Home prices have been on a tear. The median home sale price was $428,700 in the first quarter of 2022, up 30% from $329,000 in the first quarter of 2020.


— YouGov

McBride warned potential buyers hoping for a significant price correction. “Sellers put houses on the market and asked for lunar prices,” he said. “In a neighborhood where homes were selling for $600,000 a year ago, a seller can now ask for $800,000. Sure, they might have to lower the price a bit and eventually sell for, say, $725,000, but that’s still much higher than the $600,000 they would have sold a year ago.

Just 6% of homeowners said their home’s value had fallen in the last year, according to a survey of 1,000 adults by YouGov. Realtor.com last month detailed median declines in home prices, which were small by Great Recession standards. These declines were occurring in arguably already tight pockets in the United States. Among the biggest declines were Toledo, Ohio (down 18.7% since 2021), Rochester, NY (down 17%) and Detroit, Michigan (down 15.4%).

(Realtor.com is operated by News Corp subsidiary Move Inc., and CNET is a unit of Dow Jones, also a subsidiary of News Corp. NWSA,
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That’s not to say there aren’t significant risks of a correction, especially as the Federal Reserve attempts to raise interest rates without plunging the economy into a recession. Of course, there is no clear consensus on the length or severity of a recession. As Greg Handler, head of mortgage and consumer credit at Western Asset Management, told CNET: “Can you actually see a correction or an overcorrection? I think there is obviously a risk of that happening.

Only 6% of homeowners said their home’s value fell in the past year, and many of those declines no doubt occurred in already tough real estate markets.


— YouGov

More than half (58%) of Americans said they owned a home, and nearly 30% said they actually owned their home, the YouGov poll also found. (The U.S. Census Bureau’s five-year estimates, released in 2020, found that a slightly higher share (38%) of owner-occupied units own their homes freely and clearly.) “As for those who have already paid off their mortgage, it’s neither here nor there when it comes to new buyers looking to enter the market,” McBride added.

The share of homeowners who own their homes freely and clearly is due to the higher number of senior Gen Xers and Baby Boomers owning homes compared to Millennials and Gen Z. Gen Y’s 43% was well below the national average of 65%. , as of 2019, according to estimates compiled by Freddie Mac FMCC,
+1,43%,
citing “delayed marriage, financial hardship of racial and ethnic minorities, less financial security and higher debt.”

But other homeownership opportunities for first-time buyers await, even if it takes several years. “Rising home prices and a record inventory of affordable homes for sale have also hampered homeownership,” revealed a Freddie Mac Millennial Homeownership report released last year. “On the other hand, as more millennials reach their 40s, their rate of household formation will accelerate due to higher marriage rates and more stable incomes.”

The Dow Jones DJIA Industrial Index,
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et Nasdaq Composite COMP,
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held onto positive territory on Wednesday following US Federal Reserve minutes signaled flexibility on interest rate hikes.

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