Big Drop In Home Prices Coming Next Year | Melody Wright

Mortgage delinquencies are rising fast

Well, the Fed has now cut its benchmark interest rate 75 basis points, and yet mortgage rates have RISEN -- back up near 7% for the average 30-year fixed mortgage.

This has NOT been good news for the housing market, which has been frozen transaction-wise at record levels of unaffordability for the majority of aspiring purchasers.

It's been often asked on this program: How long can the housing market remain broken like this?

Well, we may be finding out the answer to that in real time.

In a growing number of metros, inventory is rising (substantially in many cases), prices are coming down, and long-standing real estate barons are starting to break their cardinal rule to "never sell".

Is this growing trickle of motivated sellers we're now seeing as more and more regional housing markets start to thaw likely to soon become a flood?

For answers, we're fortunate to hear today from mortgage expert and housing analyst Melody Wright.

Given the speed of rising mortgage delinquencies, she expects a big drop in average home prices in 2025, followed by several more years of declines.

For all the details why, click here or on the video below:

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Adam’s Notes: Melody Wright (recorded 11.13.24)

EXECUTIVE SUMMARY:

• The housing market is at historic low activity levels. September 2023 marked the lowest levels of home sales since 1999, excluding the 2010 post-crisis slump. The combined drop in new and existing home sales is striking, particularly as it remains unadjusted for population growth. This reflects severe affordability challenges, exacerbated by rising mortgage rates nearing 7% and stagnant income growth among buyers.

• Delinquency rates, which have been climbing since June, are expected to rise significantly by mid-2025. Homeowners facing increasing property taxes, insurance costs, and rate resets will likely drive a wave of distressed sales, further pressuring home prices. By June 2025, this distress is predicted to peak, leading to widespread acknowledgment of a housing correction.

• Temporary rate buy-downs, heavily utilized during home purchases, are set to expire, significantly increasing costs for homeowners. This reset mirrors the adjustable-rate mortgage (ARM) crisis of 2008, with many buyers unable to refinance due to higher rates. This dynamic could lead to more delinquencies and forced sales in 2025.

• Tourist and high-demand areas like Asheville, Fort Lauderdale, and parts of California are experiencing rapid inventory growth. Speculative investments, fueled by pandemic-driven demand and misuse of PPP funds, are unraveling. Short-term rental properties are being offloaded, contributing to oversaturation and steep price declines in these markets.

• The housing market suffers from