According to Jeff Taylor, home prices could drop another 9% this year despite the reduction in mortgage rates. (Photo: Joe Raedle/Getty Images)
According to a Mortgage Bankers Association board member, home prices could fall as much as 9% this year as the Fed moves forward with raising rates.
Real estate veteran Jeff Taylor said trading volume in the housing market could slip to a 40-year low.
His view comes despite 30-year mortgage rates retreating nearly 100 basis points from fourth-quarter highs.
According to real estate veteran and Mortgage Bankers Association board member Jeff Taylor, US housing prices are set to fall further this year as the Federal Reserve moves forward with an interest rate hike.
Taylor told Insider, “I anticipate nationally, this year, we’ll probably see a price reduction of four to 6%. And in some markets, you know, you could see seven to nine.” The forecast calls for a second straight year of home-price declines, after the Fed raised benchmark borrowing costs from near zero to nearly 5% over the past 11 months to rein in inflation.
Taylor said his call stands despite a nearly 100 basis point decline in 30-year mortgage rates since October, which could potentially draw some home buyers back into the market. Given the continuing uncertainty around inflation and interest rates, Taylor said he expects trading volume in the housing market to drop to its lowest level in 40 years.
“I think we’re going to be in a market of about $1.5 trillion to $1.6 trillion,” he said.
Mortgage rates continued to rise throughout the past year, fueled by the Fed’s rate hikes. But as consumer price pressures ease, investors are becoming optimistic that the US central bank may ease its accommodative monetary policy. This has helped pull mortgage rates from their highest levels in the fourth quarter.
According to Freddie Mac, mortgage rates are back towards 6% after reaching a peak of over 7% in November of last year. As of February 9, the average 30-year fixed-rate mortgage was 6.12%.
However, expectations that the Fed might ease its monetary policy were fueled by a recent strong jobs report. A strong labor market leads to higher wage gains and, therefore, risks worsening inflation if not controlled appropriately.
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For Taylor, booming labor markets mean the Fed could implement two more rounds of rate hikes. And with the rate hike comes a shock according to them. “It will take the first half of the year to shake up committed buyers and committed sellers to do something,” he said.
At the same time, Taylor said the Fed’s aggressive monetary policy should not deter homebuyers and sellers from striking deals, nor should they wait for the Fed to ease or cut rates.
“I think you take advantage as a buyer of the unknown and you get aggressive and make aggressive offers that you can afford,” he said.
Taylor also noted that the housing market is currently at a tight balance between buyers and sellers. “You have sellers who probably, in many cases, still aren’t thinking ‘I need to discount my house in order to make a deal.’ Buyers who are like, ‘Everything’s going up and all aspects of my life, should I really be pulling the trigger?’
“I think for a lot of the transactions to happen here in the first quarter, people on both sides are a little frozen, or not taking the steps that we need to take,” he said.
Read the original article on Business Insider