(MSN) A U.S. economist famous for predicting the 2008 housing crash believes that home prices could plunge another 15% this year.
In a recent analyst note, Ian Shepherdson – the founder and chief economist of Pantheon Macroeconomics – suggested that home price declines will accelerate further in 2023 as a result of low affordability and growing inventory.
“We estimate that single-family home prices have fallen by 5.4% from their recent peak in May 2022, but they still need to fall by a further 15% or so before they return to their long-run average, compared to disposable incomes,” he wrote in a recent note to clients.
Although consumer demand likely is bouncing back from a low point in the fall as mortgage rates fall from a record-high, Shepherdson – who predicted the mid-2000s housing bubble and subsequent recession – believes that prices have a ways to go before they hit bottom.
During the COVID-19 pandemic, home prices soared at a pace not seen since the 1970s with mortgage rates near a record low. Homebuyers – flush with stimulus cash and eager for more space during the pandemic – flocked to the suburbs; demand was so strong, and inventory so low, at the height of the market that some buyers waived home inspections and appraisals or paid hundreds of thousands over asking price.
That frenzy came to a halt when the Federal Reserve embarked on the most aggressive interest-rate hike campaign since the 1980s as it tried to slow the economy and crush runaway inflation. Policymakers already lifted the benchmark federal funds rate seven consecutive times in 2022 and have indicated they plan to continue raising rates higher this year as they try to crush inflation that is still running abnormally high.
The interest rate-sensitive housing market has borne the brunt of the tighter policy, with mortgage rates more than doubling over the course of the year. Home sales evaporated and prices began to decline from record highs.