MADISON, Wis.–Credit unions should expect real home price growth rates to remain negative for the next few years as nominal home price growth rates remain below the rate of inflation, according to a new forecast from CUNA Mutual’s chief economist.
Writing in the company’s newly released Trends Report, Steve Rick noted that real home prices when adjusted for inflation decreased 4.2% in 2022, the first decline since 2011, as rising interest rates are negatively impacting the “very interest rate sensitive housing market.”
“Nominal home prices rose only 2.2% in 2022, significantly slower than the cost of living as measured by the Consumer Price Index which rose 6.4% from December 2021 to December 2022,” observed Rick. “If we subtract this 6.4% inflation rate from the 2.2% nominal home price growth rate, we can calculate the real home price growth rate of -4.2%. This is the first decline in real home prices in more than 10 years. For each of the last 10 years nominal home price growth exceeded the rate of inflation of the goods and services we purchase to live. This made investing in housing a good investment.”
Cyclical Moves
But as the chart shown here also indicates, Rick said how the housing market moves in cycles is apparent.
“In the late 1980s the housing market experienced five years of positive real home price appreciation, followed by approximately five years of negative real price growth rates in the early 1990s,” he said. “Then the nine years of the housing price bubble of 1997 to 2005 were followed by six years of negative real home price growth rates in 2006 -2011.”
Rick said credit unions, homeowners and home shoppers should expect real home price growth rates to remain negative for the next few years as nominal home price growth rates remain below the rate of inflation of the goods and services purchased each day.
The Expected Fall in Prices
“The recent rise in the inflation rate has helped push up long-term interest rates and the 30-year mortgage interest rate,” stated Rick. “This in turn reduced the demand for housing and brought down nominal home price growth rates. The expected fall in real home prices during the next few years will help make housing more affordable to many households who are looking to purchase homes.”
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