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The senior economist for one of the nation’s largest financial institutions says the U.S. housing market is in far worse shape than many in the industry realize.
Wells Fargo Senior Economist Mark Vitner told the San Francisco Business Times that it’s only a matter of time before the true nature of the market is revealed.
“There’s no question that the housing market has long lost momentum and continued to lose momentum in July,” Vitner told the Times in an article published Wednesday. “When we get the June, July, and August data, I think we’ll see substantially more weakness in the West, and probably more weakness across the country.”
“It’s worse than it looks,” he added. "A lot of folks have underestimated how much of a shift we’ve seen in the housing market.”
The housing market has shifted from booming during the pandemic to a decline that is gaining momentum, as rising mortgage rates and home prices have negatively affected housing affordability. Mortgage rates are expected to continue to rise as the Federal Reserve fights to control rampant inflation.
The growth in home prices, however, has moderated in recent months. The S&P CoreLogic Case-Shiller 20-city composite home price index, for example, rose just 0.4% in June, about half what was expected.
“The period saw mortgage rates spike, which brought the pandemic housing boom to an end,” Vitner said. “The housing market has since seen a spurt in contract cancellations and the most rampant discounting by homeowners and builders since well before the pandemic.”
Earlier this month, Redfin reported that about 16% of home purchase agreements were canceled in July, the highest rate in two years. Realtor.com, meanwhile, reported Tuesday that 92% of recent home sellers accepted some buyer-friendly terms.
Still, Vintner told the Times he doesn't expect a repeat of the housing bust that led to the 2008 financial crisis.
“I don’t think we’re going to see a repeat of a situation where lots of folks have to suddenly sell their houses,” he said, in part because of homeowners’ substantial home equity and lenders’ strong mortgage underwriting.
Vintner said that while home-price moderation is most evident in the West, “prices are clearly cooling off throughout the country.