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Housing Market: Major slowdown, recession, and falling home prices all possible this winter

Housing market concerns have been swirling for months. Now, a Wall Street firm is warning that home prices in the U.S. are going to plunge sharply as the fall marches on.

image of new home for sale
Whether it’s a new build or listed home prices are still high. What will prompt them to fall? When they do – will it bring on a recession?

The Federal Reserve has been fighting inflation by increasing interest rates. Most experts agree that interest rates will continue to rise as hikes in early-2022 had little impact on curbing inflation.

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Black Knight Data & Analytics says the U.S. hasn’t seen home price declines this steep since 2009. Median home prices dropped 0.98% in August, which followed a 1.05% decline in July.

Home prices peaked in June and have declined 2%.


How much could home prices decline?

When the mortgage bubble burst in the late-2000s there was a 27% decline in median home prices.

While declines that large are not expected, experts are warning of declines in the 7-10% range. If that happened by the end of 2023 – it would mark the second-fastest decline since the Great Depression.

RELATED: October mortgage rates are going up

Does this mean the economy is in a recession?

Home prices and recession are often linked. That said, there’s no guarantee that even if the U.S. housing market tumbles as expected heading into the winter months that the economy is in recession.

That’s largely due to how hot the real estate market became during the padnemic. If home prices were falling from where they stood before the pandemic – then the outlook would be significantly different.

It provides an economic cushion for falling home prices.


What are the biggest indicators of the housing market’s condition?

There are a handful of important datapoints, but many of them are regional. For example, reporting that prices could drop by 20% and as many as 72% of homes sold in the last two years are overvalued.

It’s likely that there be zip codes that experience that kind of dramatic falloff in the next 12 months. That said, it won’t be the average. Keeping this front-of-mind will be crucial when reading about the overall housing market’s condition.

If you’re in the market, though, be cautious. Between rising interest rates and still above-average valuations – buyers should beware.

Here’s a few items to watch:

  • Federal interest rates;
  • Housing market property values;
  • Median home prices; and
  • Selling trends and local realtor advice.


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