US home price plunge is ‘just beginning’ as housing market rapidly cools: economist
A substantial plunge in US home prices is likely “just beginning” as decades-high mortgage rates cause a downturn in the housing market, a prominent 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, according to the National Association of Realtors.
The pending home sales index has plummeted 35% compared to one year ago, according to Shepherdson.
But cratering demand has only recently started to result in lower home prices — meaning more financial pain is on the 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 started to decline on a month-to-month basis,” Shepherdson added. “The resilience in prices was made possible by a lack of existing homes on the market, 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 price.”
As The Post reported, Shepherdson recently warned he expects home prices to fall by 20% by next year — a substantial correction after values hit record highs during the pandemic-era housing boom.
Mortgage rates topped 7% this week for the first time since 2002, according to Freddie Mac. Long-term rates have spiked as the Federal Reserve hikes interest rates to combat inflation.
“The good news is that mortgage rates are likely close to a peak, and if they remain around their current level, sales will find a floor early next year,” Shepherdson added.
Sellers are slashing their asking prices to entice buyers who are facing the worst affordability crunch in decades. 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 a year ago.
NAR chief economist Lawrence Yun warned that 7% mortgage rates are the “new normal” for buyers until the economy begins to improve.
“Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers,” Yun said.