- The US housing market is in a recession, Pantheon Macroeconomics’ Ian Shepherdson said.
- House prices are down about 5% since May, and may slump another 20% by mid-2023, the economist said.
- Federal Reserve officials have indicated they want a correction in the housing market.
The US housing market is in a recession, and home prices are poised to tumble another 20% by next summer, a top economist has warned.
“The plunging trend in sales has further to go, and prices are falling,” Ian Shepherdson, the chief economist of Pantheon Macroeconomics, said in a research note published on Wednesday.
Shepherdson and his team estimated that seasonally adjusted existing-home prices slid by 0.7% in August, the third monthly decline in a row. Prices are now down about 5% from their May peak, and are poised to slide further despite a tight supply of homes, they said.
“The very low level of inventory means that a headlong collapse in prices is unlikely, but we still expect a total decline of up to 20% by the middle of next year,” the economists wrote.
“Housing, in short, is in recession, and everything connected to housing either is in recession now or soon will be,” they added.
However, they emphasized the current housing downturn won’t crash the rest of the US economy, as the market has fewer entrenched risks than during the mid-2000s housing bubble.
Still, there are growing concerns about the sector. Inflation, which surged to a 40-year high in June and remained above 8% in August, has squeezed consumers’ budgets.
The Federal Reserve has reacted to the threat by hiking interest rates from near zero at the start of this year to over 3%, raising borrowing costs and driving long-term mortgage rates to north of 6% for the first time since 2008.
The combination of eye-watering valuations, rising living costs, and more expensive, less accessible credit has piled pressure on home prices and sales in recent months.
The median existing-home price has fallen by 6% from a record high of about $414,000 in June, to $390,000 in August, the National Association of Retailers said this month. Moreover, existing-home sales dropped for a seventh straight month in August, and were down 20% from a year earlier, the trade group said.
Fed Chair Jerome Powell has signaled the US central bank wants to bring down house prices. That would help to realign supply and demand, return appreciation to sustainable levels, and make properties more affordable, he said during a press conference on Wednesday.
“We’ve had a time of a red-hot housing market all over the country,” Powell noted. “The deceleration in housing prices that we’re seeing should help bring prices more in line with rents and other housing-market fundamentals. And that’s a good thing.”
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