For 124 consecutive months, spanning the bottom of the housing crash in March 2012 through the Pandemic Housing Boom's peak in June 2022, U.S. home prices posted positive month-over-month growth. That streak, of course, got broken thanks to last year's mortgage rate shock: Through October, U.S. home prices as measured by Case-Shiller fell for four consecutive months.
On one hand, the 2.4% drop in U.S. home prices through October 2022 remains mild. On the other hand, economists and analysts remain sharply divided on whether this is simply a minor setback for home price growth or the early innings of a sharper correction.
The relatively bullish crowd includes Zillow. The latest housing forecast produced by Zillow economists has U.S. home values falling just 1.1% between November 2022 and November 2023.
Meanwhile, the relatively bearish camp includes firms like Moody's Analytics. Its forecast has national home prices falling 5.1% between the fourth quarter of 2022 and the fourth quarter of 2023. Peak-to-trough, Moody's expects U.S. home prices to fall 10%.
Keep in mind when a group like Zillow or Moody's Analytics says "U.S. home prices," they're talking about an aggregated view of the country. In regional housing markets—heck, in each neighborhood—the results could vary significantly.
To better understand Zillow and Moody's respective forecasts, let’s delve into their regional price projections.
View this interactive chart on Fortune.com
Bifurcated. That's the one word that best describes Zillow's 2023 outlook for the U.S. housing market.
Among the 897 markets Zillow measured, it expects 658 markets to see falling home prices between November 2022 and November 2023. That includes markets like San Jose (-7.2% projection); Grand Forks, N.D. (-6.7%); Odessa, Texas (-6.4%); San Francisco (-6.1%); and Santa Rosa, Calif. (-5.3%).
Meanwhile, Zillow expects 239 markets to see positive or flat home price growth between November 2022 and November 2023. That includes markets like Atlantic City, N.J. (+4.2% projection); Homosassa Springs, Fla. (+4.2%), and Yuma, Ariz. (+3.7%).
"Mortgage rates cresting above 7% combined with normal seasonal trends to put the housing market in a deep freeze this November, sending prices down slightly while further depressing sales volumes. But substantial declines in mortgage rates [down to 6.15% as of Thursday]...and promising data showing a decline in inflation, all give grounds for cautious optimism that the worst is behind us when it comes to borrowing costs, and some of the deterred homebuying demand from this fall may return in the new year. That possibility, coupled with still-low inventory by historical standards, provides the basis for Zillow’s forecast continuing to rule out the possibility of double-digit price declines in 2023 for the nation as a whole," wrote Zillow economists in December.
View this interactive chart on Fortune.com
Among the 322 regional housing markets analyzed by Moody's, 178 markets are expected to see at least a 5% decline in home prices between the fourth quarter of 2022 and the fourth quarter of 2023. That includes markets like Morristown, Tenn. (-10.3% projection), Pocatello, Idaho (-9.9%), Muskegon, Mich. (-9.7%); Boise (-9.5%), and Santa Cruz, Calif. (-8.8%).
Why are those particular markets at risk? Mark Zandi, chief economist at Moody’s Analytics, says those markets got too far detached from underlying fundamentals during the Pandemic Housing Boom.
“Affordability has evaporated and with it housing demand,” Zandi recently told Fortune. “Prices feel a lot less sticky [right now] than they have historically. It goes back to the fact they ran up so quickly [during the pandemic], and sellers are willing to cut their price here rapidly to try to close a deal.”
While Moody's expects sharper corrections in markets like Boise and Phoenix, the firm believes markets like Baltimore (-2.3% projection) and Chicago (-2.6% projection) will fare better. The latter markets, according to Moody's, aren't "significantly overvalued."
Want to stay updated on the housing correction? Follow me on Twitter at @NewsLambert.
