2008-level home-price declines are coming for some areas, one of Wall Street's top housing advisors now says

  • John Burns Real Estate Consulting expects price drops of 20% or more for certain housing markets.
  • That’s a stark reversal from the research firm’s position just a few months ago. 
  • Higher mortgage rates have wrecked demand for homes, but the firm says prices are still too high.

Experts at John Burns Real Estate Consulting, a leading real-estate research firm that advises many of the housing industry’s biggest companies, have warned for months that home prices would eventually fall back to earth.

Until recently, though, they had argued that home-price declines might be modest compared with those of the 2008 crash, when national prices fell roughly 33% from the market’s peak.

That’s no longer the case.

Devyn Bachman, the senior vice president of research for John Burns, told Insider she had begun to expect “GFC-like pricing declines in certain markets.” That comparison to the global financial crisis is a stark escalation from her outlook in May, when she predicted there would be some “pricing adjustments” but emphasized that the housing industry was in a much better place than it was leading up to the prior meltdown.

That was before mortgage rates skyrocketed, however. Since then, the bad news has continued to pile up for the housing industry. The Federal Reserve’s steep interest-rate hikes have resulted in mortgage rates more than doubling over the past year, forcing many buyers out of the market. With demand for homes plummeting, most markets have already seen prices fall from their peaks, Bachman said. A survey conducted by John Burns last month found roughly 18% of homebuilders were already reporting year-over-year net home-price declines.

But Bachman says homes remain worryingly unaffordable, since prices nationally rose roughly 40% during the coronavirus pandemic. Her prognosis is sure to reverberate through the market given the reach of John Burns Real Estate Consulting, which has been called upon for its forecasts by companies such as Berkadia, a top firm in commercial real estate services firm that brokers financing for multimillion-dollar housing projects, and the National Association of Home Builders.

“The writing’s on the wall. Demand is not there,” Bachman said. “The absence of demand, and the fact that affordability is so out of whack, is going to lead to rapid price declines.”

There’s no glut of housing supply this time — on the contrary, a lack of building in the decade after the financial crisis is one big reason that home prices shot up as much as they did during the pandemic.

But even a housing shortage won’t keep prices from falling, Bachman said, since homes are far too expensive relative to incomes and demand “has fallen off a cliff.”

John Burns’ forecasts now factor in a recession in 2023 and 2024, said Bachman, adding that she’s “just not optimistic about the next 12 to 24 months.”

“It’s going to be a challenging one to two years for anyone involved in housing,” Bachman said.

The hottest markets of the pandemic — places like Salt Lake City, Phoenix, and Austin, Texas — are now in danger of seeing the biggest price drops, Bachman said. She declined to share exact forecasts, since that information is reserved for the company’s clients, but said her firm was expecting double-digit price declines in certain markets. Some could see prices fall by 20% or more from peak to trough, Bachman said.

Moody’s Analytics is predicting a national peak-to-trough decline in home prices of 5% to 10% over the next two years, though Cristian deRitis, the deputy chief economist at the firm, told Insider that some markets were forecast to reach 2008-level price declines.

But — echoing Bachman — deRitis said it’s important to keep in mind the elevated level from which national home prices would fall.

“In that context, it’s not the end of the world,” deRitis said. “We have a very different market today than in the late 2000s.”

List of housing-bubble warning signs flashes red

John Burns argues today’s housing market is rife with indicators suggesting a downturn.

In 2013, at a conference in Southern California hosted by John Burns, a group of housing-industry executives set out to compile a list of 20 warning signs of a housing bubble — signals that should have tipped them off in the mid-2000s that a crash was coming.

John Burns recently revisited that list and found that 16 of the 20 signs were flashing red, though a few key factors from the most recent housing collapse, such as risky lending and overbuilding, were still missing.

The main takeaway: The housing market undeniably entered bubbly territory over the past two years.

The list is divided into 10 quantitative signals, like poor affordability or waning demand for homes, and 10 qualitative signals, such as outlandish parties and booming real-estate careers.

A huge increase in the number of people owning multiple homes? Check. Investors buying up more lots than they need? Check.

As for the outlandish parties? Freedom Mortgage, the leading originator for first-time homebuyers in 2021, enlisted Grammy Award-winning Imagine Dragons to headline its conference in September. Freedom did not respond to requests for comment.

Meanwhile, homebuilders’ stock prices are falling, as are developers’ profits. None of that bodes well for the housing industry.

“We’re looking at a pricing reset for the housing ecosystem,” Bachman said.

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