‘Collapse is Coming’: Experts Anticipate Sharp Decline in US Real Estate Prices
17:14 GMT 28.11.2022 (Updated: 17:15 GMT 28.11.2022)
© AP Photo / Rick Bowmer
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As home sales continue to decline in the United States, real estate experts are increasingly expressing fears that home prices, which have spiked sharply during the pandemic, are set to soon collapse.
"In one line: collapse in prices is coming," said Kieran Clancy, senior US economist at Pantheon Macroeconomics, in a recent bulletin reported in US media.
His comments come after the National Association of Realtors (NAR) reported that data for October 2022 revealed the ninth straight month of decline for sales of existing homes in the United States. Compared to a year prior, there was a 28.4% decline in October and a 5.9% decline from September’s numbers.
Pantheon projects that housing prices will fall roughly 20% from their peak of $414,000 in June 2022, bottoming out at around $331,200. The NAR noted that in October, the average home price for all housing types was $379,100, which was still 6.6% higher than a year prior.
Pantheon chief economist Ian Shepherdson also predicted last week “a drop of 15-to-20% over the next year, in order to restore the pre-COVID price-to-income ratio.”
"In short, housing is in free-fall. So far, most of the hit is in sales volumes, but prices are now falling too, and they have a long way to go,” he added.
According to analysts, the Federal Reserve’s efforts to fight rampant inflation by aggressively increasing interest rates has bled over into the housing market, sending mortgage rates to a 20-year high of 7%.
18 October 2022, 15:09 GMT
Fannie Mae, the US-government-backed federal mortgage organization, reported earlier this month that consumer confidence in housing had hit its lowest point since 2011, when it began tracking the metric, with just 16% of consumers saying they felt it was a good time to buy a home. In addition, applications for new mortgages are at their lowest point since 1997.
For many economists and industry experts, the writing has been on the wall for some time. Last month, Jeremy Siegel, a professor of finance at the University of Pennsylvania’s Wharton School, told CNBC: "I think we're gonna have the second-biggest housing price decline since [the] post-WWII period over the next 12 months. That's a very, very significant factor for wealth [and] for equity in the housing market."
Chen Zhao, economics research lead at real estate brokerage firm Redfin, said in a report last month that "The housing market is going to get worse before it gets better.”
“The US housing market is at another standstill, but the driving forces are completely different from those that triggered the standstill at the start of the pandemic,” Zhao noted. “This time, demand is slumping due to surging mortgage rates, but prices are being propped up by inflation and a drop in the number of people putting their homes up for sale. Many Americans are staying put because they already relocated and scored a rock-bottom mortgage rate during the pandemic, so they have little incentive to move today.”
"With inflation still rampant, the Federal Reserve will likely continue hiking interest rates. That means we may not see high mortgage rates - the primary killer of housing demand - decline until early to mid-2023,” Zhao added.
The warnings come as more economists also predict a recession in the coming months, also triggered by rising interest rates. The International Monetary Fund warned recently after cutting its growth projections that for the US economy, “the worst is yet to come and, for many people, 2023 will feel like a recession.”
