There is a lot of panic about housing. There shouldn’t be.
What is possible is a slight decline in home prices in real terms, but I think even this is unlikely as supply is likely to remain constrained despite an increase in housing starts last year even as demand weakens. We do not see a huge increase in MLS listing vs sales metrics.
Generally, from an underwriting perspective, you are not concerned with real home price decline---as what matters is whether people will be underwater with their mortgages. This causes most metrics to be centered around nominal prices.
(One thing that is interesting is whether the 70's practice of assuming the existing mortgage will return. This could lead to some very interesting home price dynamics in the future.)
There will be a cooling off, but a decline is unlikely---even in real terms, but it is nearly impossible in nominal terms. Anyway, in a rare work related post, I will try to pull some metrics from our MLS data to prove my case more substantially than here.
Basic points: First, our home price forecast only shows a few MSA's experiencing a decline even when we use the most pessimistic forecasts from Moody's of MSA level economic variables. Second, we do not see a meaningful increase in outstanding inventory on MLS boards. In fact, inventory remains lower than it did in 2021 when it was still quite low compared to recent years (and very, very low if you go back decades); supply is decreasing YoY. Third, while interest rates are being raised, they remain quite low by historical standards. Homes were not exactly free in the late 70's and 80's when interest rates were much higher than they are projected to be. Fourth, home starts, while they have increased, did not increase as much as they might due to a tight labor market and completions are slow due to continuing supply chain issues--so we should not expect inventory to surge as a result of this, most inventory comes from existing homes, after all. Fifth, while inflation does reduce people's ability to borrow, it also historically increases demand for housing---both as an inflationary hedge and because rents tend to move more with inflation than other forms of investment. Sixth, housing starts have lagged behind their historical ratio with respect to family formation for many years now.
So, sorry, I don't see a mortgage crisis coming or housing fire sales. If you are inclined to panic as a result of hearing obnoxious New Yorkers pontificate at you on Fox and CNN, please really look at the graph below.