Contact Us Today (813)-282-9330

Consumer Blog

The Next Stage of the Housing Downturn is Here

Posted by Sami Thalji | Sep 22, 2022

If you are planning on buying a home, or thinking about doing so, you need to get a bit of a reset, according to Federal Reserve Chairman Jerome Powell. He said that the country needs to get back to a place where there is a steady supply of housing and inflation is low.

When the central bank stops supporting monetary easing, it affects the interest-sensitive sectors of the economy, such as real estate. When the monetary tightening comes, the impact on residential real estate will be even greater. In June, Powell admitted that the increase in asset prices over the past two years would have an impact on the housing market. However, he was not ready to predict how the rate shock would affect the prices of homes.

Back in June, it was still unclear if the housing market was going to get a boost from the reset. After a sharp drop in housing activity in June, various indicators started to show signs of a recovery. However, as data for August started to roll in, it became clear that the housing market was in the second stage of its decline. This means that the decline in housing activity and home prices is now more pronounced.

According to Rick Palacios Jr., a real estate consultant, the rising interest rates will continue to have an impact on the housing market. He said that there are several markets where home prices are expected to fall by double digits.

In this post, we'll take a deeper look at the various elements that will affect the housing market as it enters the second phase of its decline.


After the rising interest rates caused mortgage rates to increase from 3.2% to 6.3% this year, industry insiders warned that it would have a negative impact on the housing market. However, many housing bulls believed that it wouldn't cause prices to fall. In March, real estate website Zillow predicted that home prices would increase by 17.7% over the next year.

According to John Burns Real Estate Consulting, almost a hundred housing markets have experienced home values falling from their 2022 peaks. Only 50 markets have remained at their peak.

The Burns Home Value Index has already dropped by 5% in 11 markets. Among the cities where home values have dropped are San Francisco, which experienced a 8.2% drop. While it's common for prices to fall around this time of year, it's not usually for comps or home values to fall. The housing market is now more widespread than previously believed.

A growing number of research firms, including Zelman & Associates, Zonda, and John Burns Real Estate Consulting, predict that the housing market will continue to decline until 2023. According to a report released by credit rating agency, Moody's Analytics, home prices in the US could fall 5% to 10% in the next couple of years.

A recession could cause home prices to drop by double digits, according to estimates by credit ratings firm Moody's Analytics. Even though this scenario would be below the 27% decline that occurred during the peak of the housing market, it's still expected to happen.

Despite the various factors that have affected the housing market, some firms still believe that the home price correction will continue until 2023. For instance, real estate website, Zillow, noted that 62% of housing markets are expected to see home values decline in the third quarter of 2022. But, its economists believe that only around 28.5% of the country's housing markets will experience year-over-year price drops starting in August 2022.


Economist Bill McBride of the blog, Calculated Risk, noted earlier this summer that the housing market is not the target of the economy. It's actually expected to continue declining.

The home-shopping moratorium has caused many people to put their plans on hold, which has led to a reduction in demand for various homebuilding materials such as windows, doors, and refrigerators. These economic contractions are expected to help rein in runaway inflation.

According to a report released by Goldman Sachs, the housing market will continue to decline until 2023. It's not surprising that the Federal Reserve would increase interest rates in an attempt to slow the economy.

In a paper released by Goldman Sachs, the investment bank noted that the US housing market will continue to decline until 2023. It predicts that the country's gross domestic product (GDP) will drop by 8.9% in 2022 and 9.2% in 2023. During the peak of the housing market, the country's housing GDP fell by 7.4% in 2006.

Despite the various factors that have affected the housing market, most of the financial pain caused by the crisis has been concentrated in the real estate industry.

The housing market has already experienced a year-over-year decline of 29.6%. Multiple real estate firms, such as Redfin,, and Compass, have already laid off employees. Builders are also calling off projects due to the lack of demand. Some mortgage lenders are also experiencing issues.


In May, the number of homes for sale on increased by 106,900. In June and July, it rose by 102,900 and 128,200, respectively. However, in August, the increase in inventory only slowed down to around 31,900. According to a study by the firm, the number of homes for sale will eventually fall throughout the year.

After the housing market started to decline this summer, the number of homes for sale increased significantly across the country. In some areas, such as Austin and Las Vegas, the inventory of homes increased by more than 300% during the March and August period.

About the Author

Sami Thalji

Sami Thalji is a native Floridian, born in Clearwater and raised in St. Petersburg, Florida. Sami graduated from Osceola High School in Seminole, Florida before attending and receiving both his Bachelor of Science and Juris Doctor from the University of Florida in Ga...


Our law firm only represents consumers and we have built our entire practice around that fact.