Slowing
Home price growth is expected to gradually normalize, rather than suddenly correct itself.
"There are similarities between the current pattern of home price appreciation and the 2004–2006 experience," S&P said. "However, differences in the fundamental drivers of home price appreciation then and now suggest the current environment is a healthier one than the
Back in September 2005, S&P CoreLogic Case-Shiller National Home Price Index had a then-record year-over-year increase of 14.4%. It was surpassed this April when the annual change was 15%.
Every month since, the year-over-year change increased,
However, the mortgage industry has changed since the financial crisis. Most loans today are originated to Fannie Mae and Freddie Mac standards. At the same time, the
Also, adjustable rate mortgages, which made up around 40% of originations in 2005 — many with teaser rates that were used to
Furthermore, the housing market is now demand-driven, because of the
Still, prices will eventually decline, the report said. In the most benign scenario, price appreciation will turn negative by the fourth quarter of 2024 and reach a 9% year-over-year drop by the third quarter of 2026.
On the other hand, in S&P's more extreme scenario, prices start to decline after the first quarter of 2023, with a 14% year-over-year drop in the first quarter of 2026.
"Interestingly, even under the more extreme stress that we considered, home price appreciation hits -3.7% quarter-over-quarter only in 2026, which is shy of the -3.8% reading in first-quarter 2009 during the Great Financial Crisis," the report noted. "This is not necessarily surprising given the current trajectory of home prices."
But S&P added the analysis does not take into account population behavior characteristics, including
"The regression analysis and associated downside forecasts suggest that relatively adverse movements in predictors of home price appreciation are unlikely to cause prices to fall in the near term," the report concludes. "Nevertheless, if prices were to fall dramatically, our analysis suggests that the impact on certain non-agency residential mortgage-backed securities transactions would likely be limited to two rating category movements (e.g., 'AAA' to 'A')."