As home prices nationwide rose 20% year over year in most months this year, it was unimaginable that there could be a downtrend. Yet, these price increases have slowed in many markets. This has raised concerns that home prices will start to fall in some parts of the nation. A new study forecasts which markets will have this trouble.
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The rise in home prices was driven primarily by low interest rates and a flight of people from large cities to smaller ones or the suburbs. People could work from home and wanted the quality of life they could get outside metros with millions of residents. Small city life also tended to be less expensive.
Historically low mortgage rates also allowed people to buy new homes at prices they could only dream about. At one point, rates for 30-year fixed mortgages fell below 3%. Those rates have soared to nearly 7% in the past six months. Homes have become expensive, compared to early 2022. Americans have decided to stay where they are, undermining residential real estate demand.
Real estate research firm CoreLogic has released its U.S. Home Insights–September 2022 report. The researchers pointed out that home prices nationwide dropped 0.3% in July compared to June.
The CoreLogic Market Risk Indicator (MRI) shows which markets the firm believes may have a decline in prices over the next year. It uses the yardstick of markets with a 70% chance of declining. It then adds a confidence score. The markets facing the worst problems have a 50% to 75% chance of a downward price reset.
The markets with the largest risk of a decline were Bremerton, Wash.; Crestview, Fla.; Bellingham, Wash.; Reno, Nev.; and Boise, Idaho.
In at least one of these markets, Boise, home prices have risen by nearly 50% in many months since the start of 2021.
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