Home prices are already falling at the fastest rate in decades as mortgage rates march higher, and could tumble another 20% next year, according to a noted Wall Street economist.
Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said in an analyst note published last week that there is “no floor in sight” for declining home sales with mortgage rates approaching 7% for the first time since 2001. He anticipates that home prices will plunge by 15% to 20% next year.
“We expect home sales to keep falling until early next year,” Shepherdson wrote in the note. “By that point, sales will have fallen to the incompressible minimum level, where the only people moving home are those with no choice due to job or family circumstances.”
Sales of existing homes already tumbled 1.5% in September from the previous month to an annual rate of 4.71 million units, according to data released last week by the National Association of Realtors (NAR). On an annual basis, home sales plunged 23.8% last month.
THE US IS IN A HOUSING RECESSION: WHAT THAT MEANS
Painfully high inflation and rising borrowing costs have proven to be a lethal combination for the housing market, forcing potential buyers to pull back on spending.
Many experts — including Shepherdson — agree the housing market is now experiencing a recession that will worsen as the Federal Reserve continues to raise interest rates.
“If you’re planning to move homes and will need a new mortgage, you will face a huge increase in rates,” Shepherdson said. “It’s entirely possible that even people who want to trade down will face a bigger monthly payment; that’s a good reason to stay put, thereby constraining supply.”
Tea Federal Reserve is tightening policy at the fastest pace in three decades as it tries to crush runaway inflation. Policymakers have voted to approve five consecutive interest rate increases this year, including three consecutive 75-basis-point hikes in June, July and September.
At the conclusion of their meeting last month, Fed Chairman Jerome Powell reported that another 125 basis points of rate increases are on the table this year.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
The rate hikes have already driven the average rate for a 30-year fixed mortgage rate to 6.94%, according to Freddie Mac — double what they were just one year ago.
With mortgage rates rising, demand for new homes is rapidly drying up, prompting home prices to fall.