US home prices are heading for a further drop this year even though mortgages are getting cheaper, a housing market expert says

Markets Insider

  • Home prices could fall by 9% this year as the Fed powers ahead with rate hikes, according to a Mortgage Bankers Association board member. 
  • That may also entail trading volumes in the housing market sliding to 40-year lows, real-estate veteran Jeff Taylor said.
  • His view comes despite 30-year mortgage rates retreating almost 100 basis points from fourth-quarter highs. 

US house prices are set to fall further this year as the Federal Reserve pushes ahead with interest-rate increases, according to real-estate veteran and board member of the Mortgage Bankers Association Jeff Taylor. 

“I anticipate on a national level, this year, we’ll probably see, four to 6% price decrease. And in some markets, you know, you might see seven to nine,” Taylor told Insider. The forecast implies a second straight year of home-price declines, after the Fed raised benchmark borrowing costs from near zero to almost 5% over the past 11 months to rein in inflation.

Taylor said his call stands despite 30-year mortgage rates falling almost 100 basis points since October, which could potentially attract some homebuyers back into the market. Given the continued uncertainty around inflation and interest rates, Taylor said he expects trading volume in the housing market to shrink to its lowest level in 40 years.

“I think that we’re going to end up at about a $1.5 trillion to $1.6 trillion market,” he said. 

Mortgage rates stayed elevated throughout last year, influenced by the Fed’s rate hikes. But as consumer price pressures cool down, investors are growing optimistic that the US central bank could tone down its aggressive monetary policy. That’s helped pull mortgage rates from the highs reached in the fourth quarter. 

According to Freddie Mac, mortgage rates have fallen back toward 6% after peaking at over 7% in November of last year. As of February 9, the average 30-year fixed-rate mortgage stood at 6.12%.

However, expectations that the Fed could soften its monetary policy took a hit from a recent strong jobs report. A robust labor market tends to lead to higher wage gains and therefore, risks worsening inflation if not controlled appropriately.

For Taylor, a booming labor markets means the Fed is likely to implement two more rounds of rate increases. And with the rate hikes comes a shakeout, according to him. “It’ll take the first half of the year to shake out the committed buyers and committed sellers to getting something done,” he said. 

At the same time, Taylor said the Fed’s aggressive monetary policy shouldn’t put off homebuyers and sellers from carrying out deals, nor should they wait for the Fed to start easing or cutting rates.

“I think that you take advantage as a buyer of the unknown and you just get aggressive and make aggressive offers, to what you can afford,” he said. 

Taylor also noted the housing market is currently at a strong equilibrium between buyers and sellers. “You’ve got the sellers who probably, in many cases are still not thinking ‘I need to discount my house to get a deal done.’ Buyers who are just like, ‘everything keeps going up and all aspects of my life, should I actually pull the trigger?'”

“I think that’s got people on both sides a little bit frozen, or not making the moves that we need, in order to have a lot of transactions happening here in the first quarter,” he said.