Fed Chair Jerome Powell was frank with reporters last month: The U.S. housing market, he said, was in a “difficult correction.”
This housing correction—which started months ago—has only picked up steam in the weeks since Powell made the statement. As of Wednesday, mortgage purchase applications are down 38.4% on a year-over-year basis.
Historically speaking, these so-called housing corrections usually see housing activity, like home sales, plummet long before home prices begin to correct. That historical fact explains why so many industry insiders are puzzled at the moment: Even though the housing correction started just months ago, we’re already seeing sharp home price declines in many markets.
On Thursday, Fortune learned that the home price correction has spread into more markets. That’s according to the Zillow Home Value Index (ZHVI), which tracks data for 896 regional U.S. housing markets.
Let’s take a look at the data.
Among the country’s largest 896 housing markets, 121 saw a home price decline between May and September. That’s up from the 117 markets that posted a home price decline between May and August.
The markets getting rocked the hardest by the home price correction fall into one of two groups.
The first group includes frothy markets like Austin (down 8.23%), Boise (down 6.35%), Colorado Springs (down 4.13%), and Phoenix (down 6.6%). Those markets, according to Moody’s Analytics, all became “significantly overvalued” during the Pandemic Housing Boom. That’s beginning to change. Not long after spiking mortgage rates poured cold water on those markets, prices began to fall.
The second group comprises high-cost tech hubs like San Francisco (down 7.88%), San Jose (down 10.59%), and Seattle (3.93%). Those markets got hit by a double whammy: Not only are their high-end real estate markets more rate-sensitive, but so are their tech sectors.
When Fortune coined the term Pandemic Housing Boom, we did so knowing that if the boom ended in a bust we’d have to relabel it a Pandemic Housing Bubble or Pandemic Housing Bust. We even set a criterion for it: Any market that sees a greater than 10% peak-to-trough decline gets the Pandemic Housing Bubble label.
So far, just San Jose (down 10.59%) has received our Pandemic Housing Bubble label. However, other markets are getting close. In total, 19 regional housing markets notched a home price decline greater than 5% between May and September. That includes Western markets like Santa Cruz, Calif. (down 7.51%) and Boulder (down 7.46%).
Where does the ongoing home price correction go next? Firms like Goldman Sachs and Moody’s Analytics predict that in the coming years we’ll see national home prices fall by around 10%. For perspective, peak-to-trough, U.S. home prices declined 27% between 2006 and 2012.
Of course, if national home prices actually decline 10% in coming years, it will likely mean that some markets decline by 20%, 25%, or even 30%. The top suspects would likely be the very places where home prices are already falling the fastest.
On one hand, numerically some of these home price corrections are fairly big. On the other hand, even bust-like markets are still up big-time since the onset of the pandemic.
Look no further than Austin. Over the past four months, home values have fallen by 8.23% in Austin. However, home prices in the market remain up 60.93% since the onset of the pandemic.
Simply put: The Pandemic Housing Bust has a long way to go if it’s going to put a dent into Pandemic Housing Boom gains.
