Back in 2005, a housing boom in the U.S. was triggered by mortgage lenders who were almost handing out loans like volunteers at a water station during a marathon being run in the Sahara.
The housing market was essentially a house of cards back then, and a Wall Street analyst named Ivy Zelman saw it before most people did. “Poison Ivy” predicted in 2005 that the housing bubble had only just begun and was ridiculed for it by Toll Brothers CEO Bob Toll a year later. In 2006, he claimed the market had bottomed out.
Zelman incredulously asked him, “Which Kool-Aid are you drinking because I want some.”
Things got worse, and Zelman was proven to be prophetic.
It’s not a horrible idea to listen to Zelman, and she has had a lot to say this year. A story in Fortune shared details about Zelman calling the “peak” of the Pandemic housing boom in February, and she was right. A few weeks later, mortgage rates started rising.
If you are a homeowner hoping to sell or a home buyer looking for a deal, here’s what Zelman told the podcast Macro Hive Conversations about where the housing market is headed.
“So right now we’re getting a backlash of the change in direction from free money to now the rise in [mortgage] rates and inflation. So the market is poised for a fairly significant [price] correction. And we’re already seeing signs of that over the last several months. Inventories in certain markets—mostly on the West Coast, Southwest, and Mountain states—are rising at Mach speed.”
As for specifics and what that means for price tags on homes, she said her forecast model tells her that prices will drop in the U.S. by 4% in 2023, followed by another 5% decline the next year.
The decline in home prices will affect different markets in different ways. In that same Fortune story, Moody’s economist Mark Zandi said that in some markets like Austin and Boise, the drop would be less drastic, and in markets currently overvalued, he expects prices to plummet 15% to 20% in the next couple of years.
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