Calling the Bottom in Home Price Decline

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A year ago, several Wall Street economists were quite pessimistic on the outlook for single-family home prices. But recently two leading investment banks have changed their viewpoint and are now calling a “bottom” in 2023.

Last fall, Morgan Stanley, for example, was forecasting a 6% decline in overall housing prices. Now their Chief Economist Ellen Zentner has revised that forecast to a 2% overall decline, which she believes bodes well not just for housing, but for the economy in general. “Economists have always said, 'so goes housing, so goes the business cycle,'" Zentner said in an interview with Business Insider. "We're not looking for a big recovery, we're looking for more of an L-shaped recovery. But nevertheless, housing activity has bottomed, and that's probably the most important pillar to a soft landing."

Meanwhile, Goldman Sachs has also revised its projection: Instead of a 6.1% decline, the bank now sees a more moderate 2.1% pullback. Wall Street’s opinion is also being shared by home builders and by the National Association of Home Builders’ (NAHB) Chief Economist. This month, NAHB’s monthly confidence index rose 5 points to 55. This was the sixth consecutive month the sentiment improved. It is also the first time in almost a year that builder confidence moved into positive territory. “A bottom is forming for single-family home building as builder sentiment continues to gradually rise from the beginning of the year,” according to Robert Dietz, NAHB’s chief economist. “The Federal Reserve is nearing the end of its tightening cycle,” his report said. “It’s good news for future market conditions in terms of mortgage rates and the cost of financing for builder and developer loans.”

And last but not least, groundbreaking on single-family homebuilding projects surged in May by the most in three decades as permits for future construction also climbed.

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