The Crash Is Here, Pay Attention

November 4, 2022

The Crash Is Here, Pay Attention

It looks like Moody’s is calling for a crash in the real estate market, and it’s showing you exactly where it’s going to be. Let’s take a look at what they are saying in this Fortune magazine article.

In the title, it says, “Moody’s: Home prices to crash 20% in Nashville.” That’s the place where Moody’s says it’s going to crash first. 

They also released a revised forecast of the US’s 322 largest housing markets—they’ve been doing this throughout the year. And the reason people keep changing this up is that even with new data coming in, it isn’t enough to give us a clear indication of what is going to happen: We didn’t know where the Fed was going with this.

Now that we know that the Fed is going to continue to kill us with the rates, from what I’m looking at and what they’re saying, the Fed just wants to crash the real estate market.

So, let’s see what’s going to happen because Moody’s is saying that as long as unemployment stays below a certain percentage, there won’t be an actual “recession.” Let’s dive into the details of this great article.

What’s currently happening…

According to Fortune, “This week, we learned that slumped home construction subtracted 1.37 percentage points from U.S. GDP in the third quarter. That’s the biggest housing contraction since 2007. Meanwhile, mortgage purchase applications are down 41.8% on a year-over-year basis. Total mortgage purchase applications are now lower than any point hit during the Great Recession.”

“As of Friday, the average 30-year fixed mortgage rate sat at 7.08%,” they added.

Here’s the thing about information. Those who were calling a crash early on are jumping on a bandwagon. And the fact is, some areas will go down in price. But you can’t call things unless you have full information; it’s important to understand that.

This is why I love taking the middle ground—because I don’t like to decide on things before they actually happen.

So, for those people who call it “flip-flop,” that’s a bunch of crap. There’s nothing wrong with going back and forth, trying to truly understand where you’re at before you call things.

Moody’s revised forecast

A few months ago, we were all looking at mortgage rates remaining under 6%, and now look at where they’re at. They are in the seventies, which is nuts! This is what Mark Zandi says in the article:

“I raised my mortgage rate forecast and thus lowered my outlook for home sales, homebuilding, and home prices. I was expecting mortgage rates to average 5.5% through next year’s spring selling season,” Mark Zandi, chief economist at Moody’s Analytics, tells Fortune. “Now I think it is much more likely to be closer to 6.5%. That hurts demand and homebuilding and home prices.”

(Source: Fortune)

The article also shows an interactive map showing where all the different projections are, according to Moody’s revised forecast. They also show how much prices are expected to fall in those areas. Moody’s predicts that the largest drop is going to happen in Morristown, TN (26%). There’s also Boise, ID (23.3%), Flagstaff, AZ (21.6%), Coeur d'Alene, ID (21.4%), and Nashville, TN (21.1%) on the list. You can check the full graphs in the article.

Like I said before, I still believe that there won’t be a crash in a large portion of the US. In some areas, prices will definitely decrease more. Especially if we go into a recession or not.

Some of the hardest-hit places are those that saw a huge influx of people during the pandemic in 2020 and 2021.

Fortune says, “While Zandi expects the housing activity decline to bottom out in the coming months, the home price correction—which started this summer—could take years to play out.”

The bottom line

They went into more detail, and I highly encourage you to jump over to their website and read the whole thing, but I want to highlight a few things more.

At the bottom of the article, Fortune quotes what Zandi says:

"Before [home] prices began to decline, we were overvalued [nationally] by around 25%. Now this means [home] prices will normalize. Affordability will be restored. The [housing] market won't be overvalued after this process is over," Zandi says. "It's all about affordability. First-time buyers are locked out of the market. They simply can't afford mortgage payments. Trade-up buyers won't sell and buy because it doesn't make any economic sense."

And this next part is what I believe is the most important. According to Fortune, “This forecast by Moody's Analytics assumes the U.S. does not slip into a recession.” Take note that it is an assumption because, again, we really don’t know what’s going to happen, and even with all the incoming data, that assumption can change in both directions. 

Fortune continues: “If the unemployment rate were to go above 6%, Zandi predicts home price declines would be much greater than his firm currently forecasts. Indeed, if a recession does manifest, Zandi says the peak-to-trough U.S. home price decline would likely be between 15% and 20%. In ‘significantly overvalued’ housing markets, Zandi says, that decline would likely be between 25% and 30%.”

That’s pretty massive.

But then again, we don’t know. We don’t have all the information. So, just keep going to the news, dig in deeper, and take a look at the information on the back end. It’s easy to go with your emotions, but get the details and pay attention to your specific area.

And—have conversations. As you have more conversations, you learn new things. Have an awesome day!