A considerable plunge in US home prices is probably going “just starting” as decades-high mortgage rates cause a downturn within the housing market, a outstanding economist cautioned Friday.
The warning from Pantheon Macroeconomics chief economist Ian Shepherdson followed more dismal data that showed a slowdown in housing activity.
Pending home sales — a measure based on signed contracts — plunged 10.2% in September, in response to the National Association of Realtors.
The pending home sales index has plummeted 31% to 79.5 in comparison with one yr ago.
But cratering demand has only recently began to end in lower home prices — meaning more financial pain is on the best way for prospective sellers.
“The bad news is that prices have much further to fall before the market adjusts fully to the collapse in demand,” Shepherdson said in a note to clients.
“Home prices have only recently began to say no on a month-to-month basis,” Shepherdson added. “The resilience in prices was made possible by a scarcity of existing homes in the marketplace, but supply is now rising — albeit slowly — as homeowners who previously held off on selling worry that further delays will mean they fetch a much lower cost.”
Mortgage rates are above 7%.Bloomberg via Getty Images
As The Post reported, Shepherdson recently warned he expects home prices to fall by 20% by next yr — a considerable correction after values hit record highs in the course of the pandemic-era housing boom.
Mortgage rates topped 7% this week for the primary time since 2002, in response to Freddie Mac. Long-term rates have spiked because the Federal Reserve hikes rates of interest to combat inflation.
“The excellent news is that mortgage rates likely are near a peak, and if they continue to be around their current level, sales will discover a floor early next yr,” Shepherdson added.
Sellers are slashing their asking prices to entice buyers who’re facing the worst affordability crunch in a long time. Mortgage payments are commanding a much larger share of household income, and while home prices are falling fast, they’re still higher than they were one yr ago.
NAR chief economist Lawrence Yun warned that 7% mortgage rates are the “latest normal” for buyers until the economy begins to enhance.
“Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers,” Yun said.
