Where Home Prices Are Heading in 2023: This map shows CoreLogic’s revised outlook for 392 housing markets

When a buttoned-up Fed economist says the US housing market has entered a “difficult [housing correction”], it would be wise to believe it. When it comes out of Fed Chairman Jerome Powell’s lips, it’s more of a warning.

Powell is right: Not only is housing activity continuing to plummet, but US home prices are falling for the first time since 2012.

Unlike the 2000s housing correction, which saw US home prices fall 27% between 2006 and 2012, this ongoing housing correction is not supported by bad loans or oversupply. Instead, this fix is ​​driven by what Fortune it calls “pressurized affordability.” The 43% run-up in US home prices caused by the pandemic housing boom, combined with soaring mortgage rates, has simply pushed affordability beyond what many borrowers can handle.

The only levers available to depressurize affordability are falling mortgage rates or house prices. Over the past few months, we’ve seen the latter.

“Home prices continue to come under significant pressure in light of rising borrowing costs,” says Selma Hepp, deputy chief economist at CoreLogic. FortuneAnd. “[The] a notable decline in homebuyer demand will continue to weigh on house prices, bringing them closer to local incomes.

Nationwide, home prices are down 1.3% from their 2022 peak. At least that’s according to Case-Shiller’s delayed reading through August. However, markets like Austin and Reno are down 10.2% and 8.4%, respectively, while markets like Des Moines and Baltimore remain at their all-time highs. (Here’s the move to the nation’s 400 largest markets.)

But what will happen next?

To better understand where regional house prices might go in 2023, Fortune reached out to CoreLogic to see if the firm would provide us with its updated November assessment of the nation’s largest regional real estate markets. To determine the likelihood of a decline in regional home prices, CoreLogic evaluated factors such as income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates and inventory levels. So CoreLogic placed regional housing markets into one of five categories, grouped by the likelihood of home prices in that particular market falling between September 2022 and September 2023. Here are the groupings the real estate research firm used to analyze November:

  • Very high: Over 70% chance of a price drop
  • Tall: 50%–70% chance.
  • Middle: 40%–50% chance.
  • Bass: 20%–40% chance
  • Very low: 0%–20% chance

Of the 392 regional housing markets measured by CoreLogic, zero markets currently have “very low” odds of a decline in home prices over the next 12 months. Another 6 housing markets are in the “low” group and 33 markets are in the “medium” group. Meanwhile, CoreLogic has listed 65 markets in the “high” odds field and 289 markets in the “very high” odds field.

The trajectory is clear: The list of US regional housing markets heading for a negative year-over-year home price reading is widening. To see the change, just compare CoreLogic’s November 2022 rating (see chart above) with its May 2022 rating (see chart below).

The November assessment finds that 354 markets have a greater than 50% chance of experiencing a negative year-over-year reading (i.e. markets in the “high” or “very high” risk groups) over the next 12 months. This is up from 335 markets in October that had a greater than 50% chance of lowering home prices. In August, there were 125 markets at risk. In July, there were 98 markets at risk. In June, 45 markets were at risk. And in May, only 26 markets (see chart above) fell into those “high” or “very high” risk ranges.

What is happening? The house price correction continues to spread.

It didn’t take Bay Area techs long in 2020 to realize their newfound remote freedoms, coupled with historically low mortgage rates, made the pandemic the perfect time to buy in “Zoomtowns” like Boise.

At first, it didn’t matter that the pandemic housing boom made home prices in Boise significantly detached from local incomes. Well, that was until soaring mortgage rates upset the math of selling your home in Santa Clara and moving to Boise. Once migration slowed, Boise quickly entered a historically steep correction.

The correction is so sharp that Boise, which saw its annualized rate peak at 47% between July 2020 and July 2021, has already turned negative in 2022 on an annualized basis. In fact, home prices in Boise are down 7.1% from their 2022 peak and 4.3% year over year.

To date, only 1% of the nation’s 392 largest housing markets are negative on an annual basis. That said, don’t ignore Boise. The big question: Do markets like Boise correct just because their fundamentals are so out of control? Or markets like Boise are just correcting first Why have their foundations gotten so out of whack? Analysis provided by CoreLogic, which finds that 354 markets are at “high” or “very high” risk of posting a negative year-over-year reading in September 2023, suggests it could be the latter.

Do you want to stay updated on housing correction? Follow me on Twitter at @NewsLambert.

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