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Falling US home prices ‘still nowhere near the underside:’ economist


A downturn in US home sales and costs is probably going just starting, a distinguished economist warned on Thursday.

Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said in a note to clients that the housing market’s recent slump is “still nowhere near the underside, especially for prices.”

His forecast got here after existing home sales dropped 5.9% to a seasonally adjusted annual rate of 4.81 million units in July, in line with the National Association of Realtors.

Existing home sales have fallen for six straight months and have hit their lowest level since May 2020. The slump has coincided with a surge in mortgage rates during the last 12 months, which compounded the affordability challenge for would-be homebuyers facing steep sale prices.

“The underside continues to be a way off, given the degree to which demand has been crushed by rising rates; the required monthly mortgage payment for a recent purchaser of an existing single-family home is not any longer rising, nevertheless it was still up by 51% year-over-year in July,” Shepherdson said in a note to clients.

“To make matters worse, the market is now grappling with rapidly rising supply in addition to crumbling demand,” he added.

Economist Ian Shepherdson expects US home prices to slump within the months ahead.Bloomberg via Getty Images

Houses for saleExisting home sales declined nearly 6% in July.Bloomberg via Getty Images

Home prices that surged in the course of the COVID-19 pandemic are set for more declines, in line with Shepherdson. That’s despite the NAR’s data that showed the median existing-home price for all housing types in July was $403,800, a rise of 10.8% from July 2021.

“Seasonally adjusted prices are actually clearly falling, down by 1.0% in July – the third straight drop – and can have to fall lots further before the market reaches a recent equilibrium,” Shepherdson added.

Some recent data points have triggered alarm bells for the US housing market, with some experts warning a correction is underway.

Earlier this week, the National Association of Home Builders declared a “housing recession” attributable to plummeting builder confidence, higher construction costs and the uptick in mortgage rates.

The NAR provided a more optimistic outlook, with the group’s chief economist Lawrence Yun noting the country was “witnessing a housing recession by way of declining home sales and residential constructing” but “not a recession in home prices.”

The housing market has been noticeably impacted by the Federal Reserve’s recent effort to tighten monetary policy through rate of interest hikes.

Within the minutes from the Federal Open Market Committee’s July meeting, officials said “housing activity had weakened notably” and predicted that the “slowdown in housing activity would proceed.”

Shepherdson asserted the “turmoil within the housing market alone won’t change the Fed’s policy path.”

“But for those on the FOMC who’re fearful about overdoing the pace of tightening, it’ll set alarm bells ringing. On the margin, this makes it more likely that the Fed will pivot to 50bp hikes in September,” he said.

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