A prominent economist on Thursday claimed that the U.S. Home Prices could plummet to as much as 20% within 2023 as rising mortgage rates are creating an economic halt in the housing market.
According to the National Association of Realtors, existing home sales have been declining continuously for the eighth consecutive month in September, which comes to a figure of roughly about 1.5% month-over-month with an adjusted annual rate of around 4.71 million.
Since 2007, this has been the longest downfall with sales down by nearly 24% compared to a year ago.
U.S. Home Prices Could Fall As Much As 20% Next Year!
According to Chief Economist at Pantheon Macroeconomics Mr. Ian Shepherdson, as mortgage rates are surging towards 7%, there is still no hope in sight when it comes to declining home sales.
Mr. Ian Shepherdson predicts home prices to descend by 15% to 20% over the period of next year due to decreasing demand. He asserted in a note to his clients that if anyone is planning to change homes and is looking for a new mortgage.
Then be sure to be faced with a huge spike in interest rates. Even people who are ready for a trade-down also will have to confront a big monthly payment and so it is best to stay put as of now and wait for the supply-demand channel to cool down.
Ian Shepherdson also added that U.S. Home Prices have to fall to a substantial margin to create any ray of hope as the supply curve for housing is not flat. So the decrease in demand will naturally bring the prices down.
The rise in mortgage rates has thwarted the affordability factor for prospective home buyers who are already facing the wrath of high inflation for decades. The high prices that reached record levels during the pandemic-era housing boom are also another reason.
That contributes to the decline in sales. The market has been considerably shaken as the affordability crisis puts more sellers and prospective buyers on the sidelines. Freddie Mac, a federal home loan mortgage corporation said;
That the average interest rate of a 30-year-old fixed mortgage was around 6.94% as of Thursday. Mortgage rates are now at their highest since 2002 and it has even doubled since January this year.
Pantheon Macroeconomics is expecting that home sale would be declining through early next year as mortgage applications will plunge as a reaction to the higher rates. Shepherdson pointed out that sales will be falling to an incompressible minimum level by that time.
As the only people who will be shifting home will be those who have no other choice and are forced by their circumstances like job or family. The National Association of Realtors stated that the median existing-home price was recorded at $384,800 in September.
Which was up by 8.4% when compared to the same month last year. However, the current median price is a lower figure when comparing the record high of $413,800 in June. The US Chair of the Federal Reserve Mr.Jerome Powell hinted during a press conference on Wednesday.
That the US central bank is hoping to bring down house prices which would help realign supply and demand, also return appreciation to its sustainable levels, and in the process make properties more affordable.
The whole situation looks grim for the US economy as Wharton Professor Mr.Jeremy Siegel was also reported saying that he feels the U.S. Home Prices reach the second-worst decline since World War II because of the aggressive federal rate hikes.
This would lead to an extra hike of around 1.25% in fed rates by the end of the calendar year as a response to the persistent inflation.
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