In a surprising turn of events, Moody’s Analytics chief economist, Mark Zandi, has adjusted his previously bearish housing market forecast. This revision comes as a breath of fresh air for those closely monitoring the real estate landscape. Let’s take a closer look at this significant change and its potential implications for the U.S. housing market.
Back in April 2022, Mark Zandi had forewarned of a “housing correction” driven by a surge in mortgage rates. During that call, he predicted a steep decline in existing home sales, with national home price growth decelerating to 0% by May 2023. He also anticipated significant declines in certain pandemic-fueled hotspots like Austin and Boise, ranging from 5% to 10%.
As the summer of 2022 witnessed mortgage rates rising and some markets experiencing price corrections, Zandi’s outlook grew even more pessimistic. His model suggested a peak-to-trough decline of just over 8%, with some overvalued markets like Austin and Boise facing a potential 20% drop.
Interestingly, the national housing market did not quite align with Zandi’s predictions. Most indices showed U.S. home prices falling by only 3% to 5% from June 2022 to December 2022, quickly recovering those losses and even reaching new all-time highs by the summer of 2023. While Zandi was correct about Austin and Boise taking a double-digit hit, other thriving cities like Charlotte and Atlanta proved more resilient than expected.
In 2023, as national house price growth stabilized, Moody’s model suggested that it might be more of a temporary phenomenon than a true recovery. In October, Zandi’s model estimated a 4.4% drop in U.S. home prices between Q4 2023 and Q4 2024.
However, last week, Zandi provided a surprising update to ResiClub. His model no longer holds such a bearish outlook for U.S. home prices.
The latest forecast model from Moody’s Analytics now predicts a mere 0.4% decline in U.S. home prices, essentially signaling a flat year ahead.
“I expect national house prices to be flat to modestly down over the next 2-3 years,” says Zandi. “This, along with rising household incomes and lower mortgage rates, should eventually improve housing affordability and reinvigorate existing home sales.
While Zandi initially anticipated more significant price declines and a swift restoration of housing affordability and sales, the lock-in effect has been remarkably persistent, limiting the supply of available homes and thereby supporting prices. However, with time and life events such as death, divorce, children, and job changes, homeowners will need to relocate, increasing inventories of homes for sale. As a result, prices are expected to remain relatively stable for a while.”
Zandi also expressed optimism about the U.S. economy, predicting it would avoid a recession in 2024, with the 30-year fixed mortgage rate averaging 6.0% this year and 5.5% in 2025.
While Zandi’s outlook for 2024 suggests national house prices will remain flat, he believes that some regions in the Northeast, including Rochester, N.Y. (+7.1% forecast) and Albany, N.Y. (+7.9% forecast), could experience elevated price growth. Additionally, his model indicates that certain pandemic boomtowns like Austin (-6.0% forecast), Boise, Idaho (-5.4% forecast), and Provo, Utah (-5.9% forecast) may witness declines in house prices this year.
How does this revised outlook compare to other forecast models?
Among the 15 forecast models tracked by ResiClub, the average model predicts a 2.2% increase in U.S. home prices for 2024.
The housing market’s future is never set in stone, and Mark Zandi’s revised forecast presents a more optimistic perspective for the year ahead, offering hope to homeowners and potential buyers. As we navigate the complex world of real estate, staying informed and adaptable is key to making informed decisions in this ever-evolving landscape.
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