Boise, Las Vegas and Phoenix look like real estate bankruptcies – this interactive map shows how your local real estate market is changing

Fed Chairman Jerome Powell has been clear: we are not watching the US housing market normalize, we are watching it “reset” with a “hard correction”.

“Longer term, what we need is for supply and demand to be better aligned so that house prices rise at a reasonable level and pace and people can afford housing again. houses. We in the housing market probably have to take a correction to get back to that place,” Powell told reporters last week.

Essentially, the current housing correction is pushing the US housing market – which had soared on the basis of historically low mortgage rates of 3% – towards a new equilibrium in the face of higher mortgage rates. Inventory levels will continue to rise and home sales will continue to fall, which will likely drive down home prices.

But this is not a one-time housing fix. Although mortgage rates have jumped evenly across the country, the home price reset varies significantly by market. In some regional real estate markets, the pandemic housing boom has died down. Others seem to go straight from pandemic housing boom to pandemic housing crisis.

To better understand how the housing correction varies nationally, let’s look at inventory data. Reading inventory data is quite simple: if inventory levels are increasing, it means they are rapidly moving from a seller’s market to a buyer’s market.

As the housing market began to shift this summer, stocks eventually soared. Nationally, inventory levels jumped 53% between March and August.

Although inventory levels are increasing, they are still well below pre-pandemic levels: nationally, the number of active listings in August 2022 were 41.5% lower than in August 2019. This causes some real estate bulls to believe that house prices will not fall. After all, historically speaking, there is house price stickiness. Sellers don’t like to give deep discounts until the economy forces them to start cutting prices. This “economic strength” is usually a glut of supply.

But here’s the thing: Tight inventory levels aren’t stopping home prices from falling. In July, U.S. home prices posted their first month-over-month decline since 2012.

“Our view is that you’ll see — and we’re seeing it right now — home prices will fall even if supply levels don’t increase,” says Rick Palacios Jr., head of research at John Burns Real. Estate Consulting.

How can house prices fall even if there is neither a glut of supply nor a flood of struggling sellers? It comes down to accessibility under pressure. The combination of higher mortgage rates – 6.82% as of Thursday – and bubbly home prices have pushed new monthly mortgage payments well beyond what many buyers can afford. Cue plummeting home prices.

For one thing, tight inventory levels aren’t stopping house prices from falling. On the other hand, the markets that saw the largest inventory increases at the start of the summer are now seeing the largest declines in home prices. Simply put: we should always pay close attention to stock changes.

Markets with large stock spikes (over 150%) fall into one of two camps.

The first group consists of high-cost technology hubs. Look no further than San Francisco (where inventory is up 378%) and San Jose (up 177%). The reason for their sharp correction is simple: not only are their high-end real estate markets more rate sensitive, but so are their tech sectors.

The second group, and the most important, is that of the bubbling real estate markets. Being “overvalued” relative to underlying economic fundamentals does not guarantee house prices will fall. That said, during a real estate downturn, it is usually the significantly “overvalued” real estate markets that are most at risk of sharp corrections. We see it now: Over the past five months, inventory levels have skyrocketed in dynamic markets like Boise (where inventory is up 298%), Austin (up 435%), Phoenix (up 317 %) and Las Vegas (up 298%). 192%).

Not only are the bubbly markets — like Boise, Las Vegas, and Phoenix — moving fast, but they’re also looking like early-game real estate meltdowns. Let’s take a closer look.

Even before pandemic stay-at-home orders were lifted, white-collar professionals living in cities like San Francisco and Seattle in 2020 were already taking off for Mountain West getaways. The poster child being Boise. Its outdoor lifestyle, tech scene, and relatively affordable price (at least for Californians) have made it the go-to for techs working from home.

This was not well received by all the locals. Some people with California license plates even found cards printed on their windshields that said, “BACK TO CALIFORNIA, WE DON’T WANT YOU HERE.” It’s easy to see why some locals were frustrated: The pandemic housing boom — during which Boise home values ​​soared more than 50% — kept many Boise residents from buying homes. According to Moody’s Analytics, Boise is actually the most “overvalued” major real estate market in the nation, with home prices trading 72% higher than underlying fundamentals would normally support.

Fast forward to September, and that Boise boom is long gone. This summer, Boise’s inventory skyrocketed 297% while home values ​​fell 5.3%. This fix is ​​far from complete. Industry insiders tell Fortune there is a glut of new construction in Boise that will hit the market soon. If buyers aren’t found, these homes could see home prices fall even further.

There’s no doubt about it: Opendoor – a national home iBuyer – is taking heavy losses on some of its recent “turnarounds”. The epicenter of these losses could be Las Vegas.

An example is This North Las Vegas home Opendoor bought for $540,800 in May. A few weeks later, Opendoor put the house on the market for $581,000. However, he obviously didn’t have many bites. By Thursday, the list price had dropped to just $490,000. That’s 10.4% below what Opendoor paid for the house this spring.

Las Vegas continues to change rapidly, historically rapidly. Between March and August, Las Vegas stocks soared 192%. While Las Vegas home values, which are lagging, are already down 3% from their 2022 peak.

In the early 2000s, home pinball machines targeted fast-growing Sunbelt cities like Phoenix. This speculation finally worked against Phoenix once the housing bubble burst in 2008. You see, as the housing cycle “rolled on”, these investors were the first to run for the exits. This stacking of inventory, of course, only put further downward pressure on Phoenix.

Fast forward to today, and Phoenix is ​​once again at the center of a declining housing market: Between March and August, Phoenix inventory increased by 317%. This is already reflected in a sharp drop in house prices. According to Zillow, Phoenix home values ​​are down 4.4% from their 2022 peak.

Moody’s Analytics Chief Economist Mark Zandi expects home prices in grossly “overvalued” real estate markets like Boise, Phoenix and Las Vegas to fall 10% to 15% between peak and trough . But that does not imply a recession. If an economic downturn hits the country, Zandi says prices in markets like Boise, Las Vegas and Phoenix could drop 20-25%.

Let’s be clear: not all US real estate markets are changing like Boise, Phoenix and Las Vegas.

In the Greater New York metro, soaring mortgage rates have certainly had an impact on the market, but year-over-year stocks are still down. And according to Zillow, Greater New York home values ​​fell just 0.2% between May and August.

The reason? Unlike the bubbling markets of the South and West, New York is not so detached from underlying fundamentals. According to Moody’s Analytics, Las Vegas and Phoenix are “overvalued” by 53.3% and 53.8%, respectively. While Greater New York is “overvalued” by only 7.4%.

Simply put: the ongoing housing correction teaches us that housing fundamentals still matter.

Want to stay up to date on developments in the US real estate market? Follow me on Twitter at @NewsLambert.

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