An economist who predicted 2008 housing crash as a 15% drop in home prices predicts another 15%
American economist, famous for anticipating the outcome of the next recession. 2008 housing crash Considers that home prices could fall another 15% this year.
In a recent analyst note, Ian Shepherdson – the founder and chief economist of Pantheon Macroeconomics – suggested that home price declines will accelerate further in 2023 as a result of low affordability and growing inventory.
“We believe that single-family homes are more likely than double-family houses.” home prices have fallen “They have dropped by 5.4% since May 2022’s peak. However, they still need to fall by another 15% or more before they return their long-run average compared to disposable incomes,” he stated in a recent client note.
Although consumer demand likely is bouncing back from a low point in the fall as mortgage rates fall from a record-high, Shepherdson – who predicted the mid-2000s housing bubble and subsequent recession – believes that prices have a ways to go before they hit bottom.
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Home prices rose at an unprecedented rate during the COVID-19 crisis. Mortgage rates were near record lows. Homebuyers – flush with stimulus cash and eager for more space during the pandemic – flocked to the suburbs; demand was so strong, and inventory so low, at the height of the market that some buyers waived home inspections and appraisals or paid hundreds of thousands over asking price.
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The end of the frenzy was reached when Federal Reserve The most aggressive interest rate hike campaign since the 1980s was launched to slow down the economy, and curb runaway inflation. In order to stop inflation from running abnormally high, policymakers have already raised the benchmark federal funds rates seven times consecutively in 2022.
The tighter policy has had a significant impact on the interest rate-sensitive housing market, which saw mortgage rates nearly double in the past year. The record lows in home sales led to a decline in prices.
As mortgage rates continue to drop, there have been early signs that demand will return. The average rate for a mortgage is 1.25%. 30-year fixed mortgage According to data provided by Freddie Mac, rates dropped to 6.09% in the last week. (This is significantly higher than the rate at 3.56% one year ago).
“Mortgage rates have fallen by 93bp since late October, and demand looks to be rebounding—modestly—after collapsing last year,” Shepherdson wrote. It is important to be clear that any sales rebound from here will not be significant. Although monthly payments for a new homeowner of an existing house have fallen, they were still up 54% annually in December.
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Even though home prices are declining, they are still higher than one year ago. In December, the median home price was $372,000. This is a 2% increase over last year. According to a separate report, this is the 130th consecutive month with an increase in home prices year-over-year, which is the longest streak of its kind, according the last week’s The. National Association of Realtors.
Shepherdson also believes in the supply side of the equation. He believes that the home supply will rise going forward. Supply increases tends to cause prices to drop.
“The increase in home supply appears to have stopped in December. Inventory of single-family homes remained unchanged at 3.4 month sales. However, we are confident that inventory will increase again soon, especially as prices drop faster,” he stated.