This prediction is based on the FHFA Home Price Index, which showed that the South Atlantic and East South Central regions recorded the largest increases in home prices, although they are still down about 20% from earlier this year.
The Citi analysts also noted that while the Housing Price Index showed home prices in the United States remained unchanged on October month-over-month, they were expecting a 0.8% increase. Additionally, the S&P/Case-Shiller Home Price Index was reported at 8.6% on a year-over-year basis in October, falling short of the analyst consensus of 10.4%.
"More real-time price data from Redfin & Realtor.com suggests prices fell -2% M/M in November and stabilized somewhat in December (-0-1% M/M)," the analysts told Citi's clients in a note. They expect home prices to decelerate on a year-over-year basis for the remainder of 2022 and anticipate a 12% drop in new home prices from peak 2022 levels in 2023.
Impact of Higher Mortgage Rates on Home Prices
The Citi analysts mentioned that the data may be lagging and expect continued pressure in the November and December data, which will be reported in January and February, due to higher mortgage rates. As mortgage rates rise, they can impact the affordability of homes for potential buyers and potentially lead to a decrease in demand. This, in turn, can lead to a decrease in home prices.
It's important to keep in mind that these predictions are just that – predictions. It's always a good idea to do your research and consult with a financial professional before making any major financial decisions. However, if you're considering buying a home in the near future, it may be worth considering waiting until next year to see if Citi's prediction of a 12% drop in home prices comes to fruition.
