Housing prices continue to increase this year, hitting a record high in September, according to the S&P/Case-Shiller US National Home Price Index. September's data was the 8th straight month of gains for the index. As prices and mortgage rates increase, potential home buyers are pulling out of the market. Lotfi Karoui, Goldman Sachs Chief Credit Analyst, joins Yahoo finance to give insight into the housing market and how it might look heading into next year.
Karoui expounds upon housing appreciation for next year: "For 2024, I think what you'll see is a gradual cooling down of that market, where we going to continue to bring more supply, gradually, and that should help rebalance the market a little bit. Our forecast is that by the end of 2024, we will likely go back to a 2% type of house price appreciation environment which is roughly around the trend of the last 30 years or so."
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Video Transcript
- Home prices reaching those record highs in September from August. That's according to the latest Case-Shiller home price index. Now that makes eight straight months of gains for the index. And that's despite historically high mortgage rates and low existing home sales. For more on this, Lotfi Karoui, Goldman Sachs chief credit analyst joins us now. Thank you for joining us. So Lotfi, walk us through some of the nuances and what we're seeing in the demand and the prices here.
LOTFI KAROUI: I mean, you're right. The Case-Shiller index does show a 4.6% appreciation on a year-over-year basis as of September, which is a very, very strong showing. I think the big picture has been roughly the same over the last couple of quarters, which is a tug of war between very challenging affordability on the one hand driven by historically high mortgage rates. And then on the other hand, very tight levels of inventories.
Some of that reflects structural reasons, the fact that we've underbuilt pretty much since the end of the global financial crisis. And also very weak transaction volumes now. In that tug of war, tight inventories have kept the upper hand and the result is the strong price appreciation that we've seen. For 2024, I think what you'll see is a gradual cooling down of that market where we're going to continue to bring more supply gradually. And that should help rebalance the market a little bit.
Our forecast is that by the end of 2024, we'll likely go back to a 2% type of house price appreciation environment, which is roughly around the trend of the last 30 years or so.
- And Lotfi, on that point that you said about just the lack of inventory, this is, of course, not an issue that we're dealing with because of mortgage rates. It goes back several years as you point out. Just the building hasn't-- just construction hasn't kept up. From an affordability standpoint, what does that ultimately mean? Mortgage rates come down a little but at the end of the day, we're still looking at high prices, right?
LOTFI KAROUI: Absolutely. I think you need to interact the two. You do need to see some relief in terms of mortgage rates, which would normalize affordability. But you also need to build more and maybe also do a little bit more to allow for that ownership transfer from the baby boomers to the millennials to take place because that's been the other big constraint on house prices. Is that existing home sales have essentially moved to all-time low levels partly because there's very little that is transacting.
But you're right, the first order condition is to bring back more supply into the market. And the only way to do that is to build a little bit more.
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