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House prices could fall by 20% by if recession sparked by Bidenflation ravages the economy

Ian Shepherdson, chief economist at Pantheon Macroeconomics, warned of an expected drop in house prices.

Record U.S. house prices could collapse by as much as 20 percent over the next year if a Joe Biden inflation-triggered recession takes hold, a top Wall Street economist has warned.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, noted that house prices have already fallen about five percent from their peak in May and will continue to fall.

Based on his previous work, there are now 40 percent more single-family homes available than there were four months ago, and sales of previously occupied homes have slowed for the seventh month in a row.

Home prices sank 0.7 per cent in August, but Shepherdson predicts a full drop of up to 20 per cent by mid-2023.

He warned that the downward trend in sales “has more to come” and that prices are falling as the US enters the fourth quarter of 2022.

The recession will indeed engulf all aspects of the housing industry in the coming months, he says.

Shepherdson said in a note to clients: “The very low level of inventory means a precipitous collapse in prices is unlikely, but we still expect a full drop of up to 20% by the middle of next year.”

“Housing, in short, is in a recession, and everything related to housing is in a recession now or will be soon.”

Despite current projections, he acknowledged that the housing market is not as bad as the implosion Americans faced during the Great Recession of 2008.

This housing collapse is unlikely to spread to the rest of the US economy and spark a broader financial crisis, Shepherdson said.

Sales have fallen at the slowest pace since June 2020, which was affected by the global pandemic.

Excluding that, this current period has been the worst for home sales since 2015. NAR Chief Economist Lawrence Yun said this reflects “rising mortgage rates” this year.

Inflation is also near a four-decade high.

Existing home sales fell 0.4 percent last month from July, and compared to last August, the drop was 19.9 percent.

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The cooling of the once-hot housing market is due in part to sharply higher mortgage rates and rising prices that have made home buying less affordable.

Current data suggests the national median home price is now $389,500.

Previously, Shepherdson said new home sales figures “closely” track mortgage application data “which makes it clear demand is plummeting.”

Another leading economist, Mark Zandi of Moody’s Analytics, recently warned that the housing market was on the verge of a “deep freeze” due to rising mortgage rates.

It comes as new Commerce Department data released Aug. 23 showed new single-family home sales fell 8.1 percent last month compared to the previous month, with 590,000 units sold in June.

Sales have now fallen to their lowest level since 2020, according to Reuters.

Year over year, home sales are down 17.4 percent.

The British economist founded his research firm in 2012. He has been named The Wall Street Journal’s American economic forecaster twice, in 2015 and 2003, and was heralded in London as one of the “best economists in town.”

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The housing market is one of the most sensitive sectors to interest rates, according to experts.

Housing starts and building permits also fell further last month, but a collapse is unlikely given the severe housing shortage.

There were 457,000 new homes on the market at the end of June, up from 447,000 units in May.

Homes under construction made up about 67.0 percent of the inventory, and homes yet to be built made up about 24.1 percent.

At the rate of sales in June, it would take 9.3 months to clear the supply of homes on the market, compared to 8.4 months in May.

Home prices remain solidly strong, with the national median sales price for July at $403,800 representing a 10.8% increase from the prior year, and just below the record set in June.  But this is about to collapse, according to the economist.

Home prices remain solidly strong, with the national median sales price for July at $403,800 representing a 10.8% increase from the prior year, and just below the record set in June. But this is about to collapse, according to the economist.

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