Record high home prices in the US could collapse by as much as 20 percent over the next year if a recession fueled by Joe Biden’s inflation continues, a leading Wall Street economist warned.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, pointed out that housing prices have already fallen about five percent from their peak in May and will continue to fall.
According to his previous work, there are now 40 percent more single-family homes available than four months ago — and sales of previously occupied homes are down for the seventh straight month.
House prices fell 0.7 percent in August, but Shepherdson predicts a total decline to 20 percent by mid-2023.
He warned that the declining trend in sales “must continue” and that prices will fall as the US enters the fourth quarter of 2022.
There will be a recession in the coming months that will encompass all aspects of housing construction, he claims.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, warned of an expected fall in house prices
Shepherdson said in a note to his customers: ‘The very low inventory level means a breakneck price drop is unlikely, but we still expect an overall drop of up to 20% by the middle of next year.
‘Housing, in short, is in recession, and everything that has to do with housing is either in recession now or soon.’
Despite current projections, he acknowledged that the housing market is not as bad as the implosion that people in the US faced during the Great Recession of 2008.
This housing crash is unlikely to permeate the rest of the US economy and spark a broader financial crisis, Shepherdson said.
Sales have fallen to the lowest pace since June 2020, which was hit by the global pandemic.
Aside from that, this current period is the worst for home sales since 2015. NAR chief economist Lawrence Yun said it is a reflection of this year’s “escalating mortgage rates.”
Inflation is also hovering around a four-decade high.
The sales of existing homes fell by 0.4 percent last month compared to July and compared to last August the decrease was 19.9 percent.
The cooling of the once red-hot housing market is partly due to sharply higher mortgage rates and rising prices, which made buying a home less affordable.
Current data suggests the national median home price is now $389,500.
Earlier, Shepherdson said new home sales “closely” track mortgage application data “which makes it clear that demand is declining.”
Another prominent economist, Mark Zandi of Moody’s Analytics, recently warned that the housing market was on the brink of a ‘freeze’ as mortgage rates rise.
New data from the Commerce Department released on Aug. 23 showed that sales of new single-family homes fell 8.1 percent last month compared to the previous month, with 590,000 units sold in June.
Sales have now fallen to the lowest level since 2020, according to Reuters.
Year on year, home sales fell 17.4 percent.
The British economist founded his research firm in 2012. He has been named a US economic forecaster by The Wall Street Journal twice, in 2015 and 2003, and was named one of the “top economists in the city” in London.
According to experts, the housing market is one of the most interest-sensitive sectors.
The number of housing starts and building permits also declined further last month, but a collapse is unlikely due to a serious housing shortage.
At the end of June, 457,000 new homes were on the market, compared to 447,000 homes in May.
Homes under construction made up about 67.0 percent of the inventory, with homes yet to be built about 24.1 percent.
At the June sales pace, it would take 9.3 months to clear the supply of homes on the market, up from 8.4 months in May.
Home prices remain solidly strong, with a national median selling price of $403,800 in July, up 10.8% from a year ago, and just below the record high in June. But according to the economist, this is going to tumble