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M REPORT | 53 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA Housing Forecast Dusts Off the Word 'Depreciate' Veros Real Estate Solutions' forecast anticipates that home prices will overall turn negative and depreciate by the end of 2023—entering negative territory for the first time in more than a decade. T he latest quarterly forecast from Veros Real Estate Solutions, an enterprise risk manage- ment and collateral valuation service company, now anticipates that home prices will overall turn negative and depreciate by 0.5% by the end of 2023—this is a signifi- cant change from the last forecast during the third quarter which predicted a 1.5% annual apprecia- tion by the end of 2023. This is the first time Veros' forecast has been in negative ter- ritory in over a decade. VeroFORECAST monitors and utilizes data from the top 318 larg- est housing markets covering 987 counties or 82% of U.S. residents. "This decrease to an average depreciation of -0.5% over the next 12 months is the first time in over a decade that Veros' aver- age house price forecast has gone negative," said Eric Fox, Veros' Chief Economist. "The last time that the annual forecast was expected to be negative was in 2012 following the aftermath of the previous hous- ing market crash. Though average depreciation is expected now, the fundamentals of the U.S. housing market in 2023 are much better than they were a decade ago. This is not going to be a repeat of what we saw in 2007–2008." Extreme depreciation is not expected at this time, though the softening market is a stark contrast to what has been experienced in the previous couple of years. "Interestingly, many markets which were the big housing mar- ket winners of the past year or two are now forecast to be some of the worst-performers including San Francisco, Seattle, Austin, Boise, San Jose, and Las Vegas," Fox continued. "These markets are all expecting depreciation over the next 12 months, which will range from -5% to -7%" The 10 strongest performing markets in the country forecast over the next 12 months are only forecast to appreciate at the 4% to 6% level, which is down signifi- cantly from what the top per- forming markets were expected to do just a year or two ago. The 10 least performing markets over the next 12 months had the most notable changes. In last quar- ter's forecast, there were five mar- kets forecast to depreciate. However, now all these 10 markets are forecast to depreciate in the next year. After their spring peak, prices started decreasing, revealing the new market conditions: While the pandemic may have dictated the race for space that fueled the buy- ing frenzy of 2020 and 2021, new mortgage rates are dictating a shift in preferences. When it comes to condo prices, the decreases were far less generalized than single-family home price drops, but slightly more consistent, with the top 10 steepest decreases ranging be- tween -15% and -29%. For instance, in Stockton, California (the city with the biggest drop) condo prices fell from $252,500 in May to $180,000 in October. Plus, condo prices contracted more than 20% in four other cities: Raleigh, North Carolina; New Orleans; Omaha, Nebraska; and Glendale, Arizona— which saw condo price drop -21% to -25%. Zooming in on the cities with the most significant single-family home price contractions, some of them displayed dramatic differ- ences: the median single-family home price in Irving, Texas went from $450,000 in May to $353,000 in October follow- ing a -22% contraction. Further north, Toledo, Ohio experienced a similar contraction—but here, house prices dropped from nearly $125,000 to $100,000. Our analysis also revealed 10 other large cities where house prices fell between 15% and 18%. Record-low mortgage rates, remote work, and the need for more space fueled the pandemic's housing boom. But now, record- high rates and inflation—coupled with historic-high prices and market volatility—are all forcing a real cooldown in America's largest housing markets. Price Increases Point to Same Trend of Growing Demand for Condos In Oklahoma City, Oklahoma, condo prices jumped an astound- ing 79% since May. At the same time, the biggest price increase for single-family homes was 11% in Tulsa, Oklahoma. The price correction that started to ripple through the market in the spring engulfed most large cities. Even so, both condo prices and single-family home prices kept rising in some markets. If the generalized price contractions make sense given the current economic conditions, the cities and markets where prices adamantly continue to grow are quite the outliers. That said, even price increases follow the same two-speed market pattern: condo prices are growing faster, thereby supporting the idea that demand for condos is outstripping demand for single- family homes. Condo prices kept rising in 33 of the 100 largest cities, whereas single-family home prices only continued their upward trajectory in 10 cities. Additionally, while single-family home prices barely went up more than 10% in just one large city, condos recorded price jumps of up to 80%. The state that stands out in this category was Oklahoma. In particular, Tulsa experienced the biggest price increases for single- family homes of all the cities in the analysis, and Oklahoma City recorded the sharpest spike in condo prices. Plus, these numbers were all the more spectacular because home prices are generally on a descending slope. Aside from Oklahoma City, condo prices increased by more than 10% in nine other markets, with Tampa, Florida trailing Oklahoma City with an impres- sive growth of its own: condo prices in Tampa went up 40%— from a median of $257,500 in May to $360,000 less than half a year later. Both the price increases and especially the price contractions swiping the housing market show that buyers aren't giving up on their homeownership dreams, but merely adjusting them to fit the new, harsher market condi- tions. Although the need for more space is still buyers' main driver, affordability concerns are starting to take precedence. Because of the rising mortgage rates, single-family homes are becoming increasingly unaffordable for homebuyers across the nation, making condos the next best thing.