The real estate market has negatively felt the impact of inflation, but there’s good news for consumers: US home prices could decrease as much as 20%, according to economists.
Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said home prices have dropped by 5% since the May peak. He projects the seasonally adjusted existing home sale prices fell 0.7% in August, the third month proving a decrease.
Shepherdson and many other experts believe the housing market is in a recession due to inflation and higher borrowing costs are major causes of the dramatic price changes in the housing market. Buyers who reached their peak budget had to pull out from deals due to the spike in interest rates this past June.
“The very low level of inventory means that a headlong collapse in prices is unlikely, but we still expect a total decline of up to 20% by the middle of next year,” Shepherdson told Fox Business last week.
The National Association of Realtors said the “median existing-home sale prices rose from 7.7% from one year ago to $389,500” in a new report last Wednesday. This comes after the NAR’s data reported an all-time high of $413,800 in June.
The average rate for a 30-year mortgage is above 6%, which is the highest since the 2008 financial crisis and recession. However, Shepherdson stated though the current recession is not as extreme, average mortgage rates are also “not good.”
Since buyers have pulled out of the market, the demand for new homes is reducing, causing the prices of houses to drop.
“The deceleration in housing prices that we’re seeing should help bring sort of prices more closely in line with rents and other housing market fundamentals and that’s a good thing,” said U.S Federal Reserve Chair Jerome Powell, who addressed the state of housing prices last week after central bank officials reported a third straight 0.75% increase.
Shepherdson warned that consumers shouldn’t “be deceived” by this sudden decrease due to the recession. “Sales lag mortgage applications, which continue to fall, pointing to further significant declines,” Shepherdson said.
From the perspective of Real Estate, this “recession” is something that agents are familiar with.
“Anytime interest rates rise, prices of homes go down. We were in a market where buyers were offering well over asking for homes due to extremely low rates,” said Jacqueline Clancy, Real Estate Broker at Daniel Gale Sotheby’s and Regional Manager of sales in Stony Brook. “Now we are at 6 percent interest rates and the buyers have no choice but to pay closer attention to what it is they are buying.”
It is in market shifts like this one, where it is most important to work with a trusted real estate advisor who has navigated these market shifts before,” added Clancy.
