House prices havewith demand for residential real estate cooling in several US states and cities and prices could continue to fall as much as 20% next year as mortgage rates rise and the housing market normalizes in the wake of the pandemic , according to a prominent Wall Street economist.
Ian Sheperdson, chief economist at Pantheon Macroeconomics, said in a report this week that falling demand for homes amidis weighing heavily on house prices.
“[W]We expect home sales to continue to fall into early next year. At that point, sales will have fallen to the incompressible minimum level, where the only people moving home are those who have no other choice due to work or family circumstances,” he said. “Discretionary buyers are rapidly disappearing against the nearly 400 [basis point] price increase in the last year.
Home sales fell to 4.7 million last month, down 1.5% from August, according to the National Association of Realtors.
Rising interest rates could further restrict supply
Mortgage rates have more than doubled this year. The average rate on a typical 30-year mortgage rose this week to 6.94%, from 6.92% last week and 3.2% in January. The average rate on 15-year fixed-rate mortgages is now 6.23%, compared to 2.33% a year ago.
Rising rates have forced some homeowners to hold back on selling their properties because they would have to take out a mortgage to buy another home as rates rise.
“It’s quite possible that even people who want to downgrade will face a higher monthly payment,” Shepherdson said. “That’s a good reason to stay, which limits supply.”
The supply of homes available for sale is likely to shrink next year, Shepherdson predicted, while noting that “prices have to fall substantially to restore balance.”
The median home sales price rose to $384,800 in September, up 8.4% from a year ago, the NAR said.
“We think inventory could increase modestly in the next month or two as homes stay on the market longer, but new listings continue to decline as sellers sit on the sidelines,” Nancy Vanden said in a statement. Houten, Leading US Economist at Oxford Economics. investigation Note
How high will rates go?
Economists expect mortgage rates to continue rising next year as the Federal Reserve further raises borrowing costs in a bid to curb inflation. Rates could hit 8.5% “which would be another big shock to the housing market,” NAR chief economist Lawrence Yun told a group of property investors last week. Other analysts believe mortgage rates could hit double digits.
Mortgage rates have soared nearly 3.8% since the end of 2021, according to Oxford Economics. Wall Street analysts expect the Fed hike to boost its benchmark interest rate by as much as an additional 1.5% by the end of the year.
“At the beginning of the year, it seemed very unlikely that mortgage rates would go above 6%,” Lisa Sturtevant, chief economist at Bright MLS, told Realtor Magazine. “Now the question is how far will they go? Much of the answer depends on how aggressive the Fed is with rate hikes at its next two meetings.”