Record U.S. house prices could plummet by up to 20% over the next year if a Joe Biden inflation-triggered recession takes hold, a Wall Street economist has warned.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, pointed out that house prices have already fallen around 5% from their peak in May and will continue to fall.
According to its previous work, there are now 40% more single-family homes available than four months ago – and sales of previously occupied homes have slowed for the seventh month in a row.
Home prices fell 0.7% in August, but Shepherdson predicts a total decline of up to 20% by mid-2023.
He warned that the downward sales trend “still has a ways to go” and that prices are falling as the United States enters the fourth quarter of 2022.
The recession, indeed, will encompass all aspects of the housing industry in the coming months, he argues.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, warned of an expected drop in house prices
Shepherdson said in a note to clients: “Very low inventory levels mean a dramatic price crash is unlikely, but we still expect a full decline of up to 20% by the middle of next year. “.
“Housing, in short, is in a recession, and everything related to housing is in a recession now or soon will be.”
Despite current projections, he acknowledged that the housing market is not as bad as the implosion people experienced in the United States during the Great Recession of 2008.
This real estate crash is unlikely to ripple through the rest of the US economy and cause a broader financial crisis, Shepherdson said.
Sales fell at the slowest pace since June 2020, which was affected by the global pandemic.
Other than that, this current period has been the worst for home sales since 2015. NAR Chief Economist Lawrence Yun said this reflected “the escalation in mortgage rates” this year.
Inflation is also near a four-decade high.
Existing home sales fell 0.4% last month from July, and compared to last August, the decline was 19.9%.
The cooling of the once-hot housing market is partly due to significantly higher mortgage rates and rising prices that have made buying a home less affordable.
Current data suggests the national median home price is now $389,500.
Earlier, Shepherdson said new home sales figures were “closely tracking” mortgage application data “which clearly shows that demand is cratering”.
Another prominent economist, Mark Zandi of Moody’s Analytics, recently warned that the housing market was on the verge of a “deep freeze” due to soaring mortgage rates.
It comes as new Commerce Department data released Aug. 23 showed sales of new single-family homes fell 8.1% last month from the previous month, with 590,000 units sold in June.
Sales have now fallen to their lowest level since 2020, according to Reuters.
Year over year, home sales are down 17.4%.
The British economist founded his research firm in 2012. He was twice named a US economic forecaster by the Wall Street Journal, in 2015 and 2003, and hailed in London as one of the “best city economists.
The housing market is one of the most interest rate sensitive sectors, according to experts.
Housing starts and building permits also fell last month, but a slump is unlikely due to a severe housing shortage.
There were 457,000 new homes on the market at the end of June, compared to 447,000 units in May.
Homes under construction made up about 67.0% of the inventory, with homes to be built making up about 24.1%.
At the pace of June sales, it would take 9.3 months to sell the supply of houses on the market, compared to 8.4 months in May.
Home prices remain strong, with the July national median sale price of $403,800 representing a 10.8% increase from a year ago, and just below the record set in June. But that should plummet, according to the economist