Buckle in for a brutal free-fall in home prices and US housing is in a massive bubble, experts say. Here’s how bad Jeremy Siegel, Paul Krugman and 5 others think it could get.

sale of homes

Signs of stress are mounting in the US housing market.(Photo by SAUL LOEB/AFP via Getty Images)

  • The US housing market is unraveling as rapid interest rate hikes by the Federal Reserve send mortgage costs skyrocketing.

  • Home sales have been down for 8 months and prices are going down. But economists say the worst is yet to come.

  • Here’s what Jeremy Siegel, Paul Krugman and 5 other top experts have to say about how painful things are going to get.

The alarm bell is already ringing for American homeowners as rising mortgage rates scare away buyers, and the US housing market slump will only get worse, experts say.

The signs of stress have become blatant. Recent data showed that in September, existing home sales fell 24%, the eighth straight monthly decline, marking the longest drop since 2007. Home starts plummeted and the number of new homes for sale fell. 22%.

Behind the deteriorating housing market is the Federal Reserve, which is aggressively raising interest rates to combat 40-year high inflation. That has sent mortgage rates soaring to 20-year highs.

That has made buying a home more expensive, prompting buyers to back down: Mortgage applications are at their lowest level since 1997. Meanwhile, growing concerns about a coming economic downturn have slowed the demand.

This is what the 7 leading experts are warning about what will happen next.

Jeremy Siegel, Wharton finance professor

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“I expect home prices to drop 10% to 15%, and home prices are accelerating down,” Siegel told CNBC in a recent interview, noting that home prices according to any indicators are going down.

In a separate interview with CNBC, he said, “I think we’re going to have the second biggest drop in house prices since the post-World War II period over the next 12 months. That’s a very, very important factor for the wealth”. [and] for fairness in the housing market”.

Mark Zandi, Chief Economist at Moody’s Analytics

“Buckle up. Assuming rates stay close to their current 6.5% and the economy avoids recession, then national house prices will fall almost 10% from peak to trough,” he said. he said in a recent tweet. “Most of those drops will happen sooner rather than later. And home prices will drop 20% if there’s a typical recession.”

In a recent real estate report, he said: “The housing market is the most sensitive sector of the economy to interest rates. It is at the forefront of the fallout from the Federal Reserve’s efforts to reduce inflation.”

“There’s going to be a coast-to-coast recession in the housing market. It’s going to be brutal. No part of the market is immune.”

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David Rosenberg, veteran economist and Rosenberg’s head of research

“We have a massive housing bubble right now. Most of the household balance sheet is residential real estate and stocks,” Rosenberg said in a RealVision interview published this week.

The economist pointed to the Fed’s tightening efforts to reduce inflation from recent 8-9% rates to its 2% target.

“They want the stock market to go down. They want home prices to go down. Why? Because there’s not a snowball chance in hell that they’re going to hit their holy grail consumer inflation of 2%.” , without there being a period now of asset deflation. It’s 100% necessary.”

Paul Krugman, Nobel Prize-winning economist

The veteran economist agrees that a severe recession is looming, but expects it to be a while before higher rates really affect home prices and demand.

“The Fed’s rate increases have indeed led to a sharp drop in building permit applications. However, construction employment has not yet started to decline, presumably because many workers are still busy finishing houses that started when rates were lower,” he said in a recent comment.

“And the broader economic effects of the looming housing bust are still many months away,” he said.

Ian Shepherdson, Chief Economist at Pantheon Macroeconomics

Shepherdson believes the sharp drop in home sales has not yet bottomed out, and even buyers who set their sights lower on cheaper homes will still face higher mortgage payments.

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“We expect a 15-20% drop over the next year, to restore the pre-COVID price-to-income ratio,” the strategist said in a note last week.

“In short, housing is in free fall. So far most of the impact is on sales volumes, but now prices are also falling and they have a long way to go.”

Don Peebles, real estate developer and CEO of Peebles Corp.

“I think the housing market is headed for a recession. We’re going to see price declines; price declines have already started,” Peebles told Fox News last week.

“I look at this as if we had this runaway freight train, speeding up, speeding up with low interest rates, and no one seemed to start slowing down or hitting the brakes. Now all of a sudden it’s going to come.” crashing into the station,” he said.

Chen Zhao, head of economic research at real estate brokerage Redfin

“The housing market is going to get worse before it gets better,” Chao said last week, alongside a report that found a record 22% of homes for sale had a price drop in September.

“With inflation still rampant, the Fed is likely to continue raising interest rates. That means we may not see high mortgage rates, the number one killer of housing demand, come down until early to mid-2023.” .

Read the original article on Business Insider


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