US house prices will probably have to fall as much as 20 percent in the course of a multi-year correction before the housing sector can get back on track with historical trends, it warned this week. a research company.
More recent correction cycles that have taken place in the US housing market, such as a bubble in the 1990s and the implosion of the industry in the mid-2000s, have taken several years to close, the co-founder said from DataTrek. Research, Nicholas Colas.
In the current market, US home prices have only begun to fall in the last few months, suggesting that the declines will continue for the foreseeable future.
“U.S. home prices need to fall 15 to 20 percent over the next few years to return to their long-term growth trend. That process has clearly just begun, but it has a long way to go,” Colas said in a note to investors this week. by Insider.
Colas stated that June house prices were 29 percent higher than their historical trend.
US home prices rose to their highest level on record during a period of easy financial policy and low interest rates in response to the COVID-19 pandemic. But prices began to fall rapidly this year as the Federal Reserve implemented interest rate hikes to cool inflation and slow the economy.
Mortgage rates have more than doubled this year, and were briefly above 7 percent for the first time in 20 years in October. As of Thursday, a 30-year fixed-rate mortgage averaged 6.49%, according to Freddie Mac.
Rising rates have crushed home affordability for potential buyers and forced sellers to lower their listing prices to stimulate interest.
“Higher mortgage rates will do some of the work to bring prices back, of course, but history says any correction in this market will take time,” Colas added.
Colas’s prediction matched that of Pantheon Macroeconomics chief economist Ian Shepherdson, who also projected house prices to fall as much as 20 percent during the current correction.
In a speech at the Brookings Institution earlier this week, Fed Chairman Jerome Powell described conditions during a pandemic era in real estate as a “bubble” that has since burst.
“Coming out of the pandemic, rates were very low, people wanted to buy houses, they wanted to get out of the cities and buy houses in the suburbs because of covid,” Powell said. “So you really had a housing bubble, house prices going up to very unsustainable levels and overheating and things like that.”