The residential real estate market has screeched to a halt, and some economists believe home prices are about to drop significantly.
The big picture: Existing home sales have fallen for nine straight months. The supply of single-family homes is growing. And with mortgage rates near 7%, experts say a large-scale housing slowdown is becoming increasingly likely.
What they're saying: "In one line: Collapse in prices is coming," wrote Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics.
- Pantheon estimates that existing home prices will keep falling, ultimately dropping by about 20% from their June peak of around $414,000.
- Goldman Sachs analysts also recently cut their outlook for home prices, from roughly flat next year to down 4%, noting that "unsustainable levels of housing affordability to continue weighing on housing demand."
Between the lines: Until recently, economists had pooh-poohed the prospect of a nationwide price slump, suggesting that persistently low inventories of houses to buy would put something of a floor under the market.
- Even if demand fell because of surging mortgage rates, they reasoned, there would still be enough buyers for the relatively small number of houses for sale, meaning prices likely wouldn't drop much.
Yes, but: While analysts are coming around to the idea that house prices could see a correction, they still don't expect an outright bust.
- Unemployment remains low. And most homeowners who bought in recent years have locked in rock-bottom rates, making their payments affordable.
- That means a surge in defaults — like the one that crashed the U.S. housing market in 2008 and 2009 — is unlikely, economists say.
Bottom line: Some decline in home prices is likely in the offing. It won't be a disaster. And lower prices will be welcomed by frustrated, would-be buyers.
