US home prices are on the brink of ‘substantially’ tanking because of a ‘cratering of demand’
Is the real estate bubble FINALLY about to burst? Home prices are on the brink of falling as much as 20%, an economist says, thanks to rising prices that have fueled demand, rising mortgage rates and an abundance of supply
- Sales of new single-family homes fell 8.1 percent last month from the previous month, with 590,000 units sold in June
- The decline is even stronger year on year: 17.4 percent fewer homes were sold in June 2022 than in June 2021
- The slowdown comes amid rapidly rising interest rates, making mortgages less affordable and slowing demand for real estate purchases
- A Wall Street analyst said US home prices are likely “about 15 to 20 percent overvalued” compared to incomes
Home prices in the US could be on the brink of falling as much as 20 percent on falling demand due to rising mortgage rates, a leading economist warned.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, pointed out in a note to investors on Tuesday that there are 40 percent more single-family homes available now than four months ago.
Shepherdson said he believes home prices in the US are likely “about 15 to 20 percent overvalued” compared to incomes.
“The market is adapting to a new reality, with much lower sales volumes and much more inventory,” he wrote.
“So prices have to adjust to the downtrend, probably quite substantially.”
He said new home sales “closely” track mortgage application data “which shows that demand is contracting.”
Another prominent economist, Mark Zandi of Moody’s Analytics, recently warned that the housing market was on the brink of a ‘freeze’ due to rising mortgage rates.
They spoke like new data from the Trade Department published Tuesday, it found that sales of new single-family homes fell 8.1 percent last month from the previous month, with 590,000 units sold in June.
Sales have now fallen to the lowest level since 2020, according to Reuters.
Year on year, home sales fell by 17.4 percent.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, warned Tuesday of an expected fall in home prices
However, the pattern was not uniform.
Sales declined in the Northeast, West and the populous South, but rose in the Midwest.
The contract rate for a 30-year mortgage averages 5.54 percent, according to data from mortgage bank Freddie Mac.
Interest rates have risen more than 200 basis points since January as inflation spiked and the Federal Reserve tightened monetary policy aggressively.
The US central bank is expected to raise its key rate by another 75 basis points on Wednesday. That would bring total rate hikes since March to 225 basis points.
The housing market is one of the most interest-sensitive sectors.
Data from last week showed that sales of previously owned homes fell for the fifth consecutive month in June. The number of home starts and building permits also declined further last month, but a serious housing shortage means a collapse is unlikely.
The median price of a new home is up 7.4 percent in June from a year ago to $402,400.
At the end of last month, there were 457,000 new homes on the market, compared to 447,000 homes in May.
Homes under construction made up about 67.0 percent of the inventory, with homes yet to be built about 24.1 percent.
At June’s sales pace, it would take 9.3 months to clear home supply on the market, up from 8.4 months in May.