Housing analyst who called 2008 crash sees house prices fall in 2023, 2024: ‘Poison’ Ivy Zelman
“poison ivy.” It’s what real estate bulls called analyst Ivy Zelman after she walked out in 2005 and called the top of the real estate bubble.
When Toll Brothers CEO Bob Toll tried to say the housing market bottomed out in 2006, Zelman joked “What Kool-Aid are you drinking, because I want some.” Of course, Zelman’s fears about the housing crisis turned out to be more than correct, and anyone who at the time thought demographics would continue to drive 2000s home prices turned out to be dead wrong. .
Fast forward to 2022, and Zelman is once again making the housing bulls sweat.
Last February, the founder of Zelman & Associates called the “peak” of the pandemic real estate boom. She was on the money again – A few weeks later, soaring mortgage rates pushed the US housing market into a downturn. This summer, as the housing correction intensified, Zelman provided a bearish assessment of U.S. home prices to clients of his housing research firm.
“So right now we are getting a backlash from the change in direction from free money to the upside of [mortgage] interest rates and inflation. The market is therefore about to experience quite significant growth. [price] correction. And we are already seeing signs of this over the past few months,” Zelman recently said on the Macro Hive Conversations podcast. “Inventory in some markets, primarily in the West Coast, Southwest and Mountain states, is growing at mach speed.”
In 2023, Zelman’s forecast model predicts that home prices in the United States will fall by 4%. Then in 2024, Zelman predicts another 5% drop in US home prices.
“As fast as [inventory levels] rise and demand collapses, we could see [home] price corrections. But that’s going to vary by market,” Zelman says. “I don’t think it will end quickly. It will be a very pressured market nationally in 2023 and 2024.”
Zelman’s outlook is for an 8.8% decline in U.S. home prices between 2022 and 2024. Historically speaking, that would make this one of the three largest home price declines on record. The other two being the Great Depression and the Great Recession.
If Zelman’s prediction is true, Fortune should change our branding from the pandemic housing boom – a period that has seen US home prices soar 43% in just over three years – to the pandemic housing bubble. That said, this predicted drop is still more of a housing correction than a real estate crash, which the industry says requires a 20% drop in prices. At least it wouldn’t be at the level of the last crash: peak to trough, House prices in the United States fell by 27% between 2006 and 2012.
Not everyone agrees with Zelman’s bearish outlook, of course. Over the coming year, Zillow predicts US home prices will rise another 2.4%. Goldman Sachs predicts that U.S. home prices will rise 1.8% in 2023 and 3.5% in 2024. Meanwhile, companies like the Mortgage Bankers Association, CoreLogic, Fannie Mae and Freddie Mac are still predicting a modest rise single-digit house prices in 2023.
But Zelman isn’t the only housing bear either. From peak to trough, Moody’s Analytics expects U.S. home prices to fall 0-5% nationally. If a recession hits, Moody’s forecasts drop to 5% and 10% respectively. Falling house prices are also predicted by research firms such as John Burns Real Estate Consulting, Zonda, Capital Economics and Pantheon. Fitch Ratings thinks house prices could fall 10-15% if the housing slump gets worse.
Mark Zandi, chief economist at Moody’s, recount Fortune that factors such as “record vacancy rate”, “very good underwriting” and “ordinary loan” will not be enough to prevent a single-digit drop in house prices. However, this will prevent the US housing market from descending into a full-fledged “housing crash”. This time around, Zandi says the owners are in much better financial shape.
Keep in mind that when an economist or analyst says “US home prices,” they’re not talking about your home. Across the country, Zandi says the results of the ongoing housing correction will vary. In bubbly markets, like Austin and Boise, Zandi predicts home prices will drop between 5% and 10%. If a recession hits, Zandi expects a 15-20% drop in the country’s 187 significantly “overvalued” regional real estate markets.
Want to stay up to date on housing correction? Follow me on Twitter at @NewsLambert.
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