Warning: Economist Says US Home Prices To Experience A ‘Steep And Sustained’ Fall This Year

Economist Kieran Clancy warns ‘the bulk of the drop in home prices is yet to come’

(Fox Business) The U.S. housing market has defied expectations for a crash so far this year, but a steep decline in home prices could be right around the corner, according to a new analyst note from Pantheon Macroeconomics.

In contrast to the widespread belief that the housing market has already hit bottom and is now in the midst of a recovery, Pantheon economist Kieran Clancy argued that the better-than-expected performance seen this spring was merely the result of “aggressive discounts and a lack of resale inventory – not an actual housing market recovery.”


“We are baffled by the emerging narrative in the commentariat that housing is now recovering, because it isn’t,” Clancy wrote in the note. “Home sales jumped at the start of the year, lagging the late-2022 dip in mortgage rates, but they have fallen more recently thanks to the latest back-up in rates, and mortgage applications signal that they will soon dip to a new cycle low.”

For the housing market to truly recover, affordability needs to improve. A recent report from real estate analytics firm ATTOM suggests that affordability declined again in the spring as the price of a median single-family house surged to $350,000 in the second quarter. That represents a 10% jump from the previous quarter, one of the biggest increases in the past decade.


A house is for sale in Arlington, Virginia
A house is for sale in Arlington, Virginia, on July 13, 2023. ((Photo by SAUL LOEB/AFP via Getty Images) / Getty Images)

The portion of average wages required to own a home, meanwhile, skyrocketed to 33% in the period from April to June. That marks the highest debt-to-income ratio since 2007, meaning the market is the least affordable for Americans in nearly two decades.

“The shift in sales towards new homes does not change the bigger picture, however, which is that a durable recovery in overall market activity is out of the question until affordability improves,” Clancy said.

He added: “Home sales can’t recover until affordability improves, which requires lower mortgage rates, or falling home prices, or both. In short, the housing market is not in the early stages of recovery; the downturn merely is morphing from a collapse in demand, sales, and construction, to falling prices and housing-related consumption spending.”

Although the Federal Reserve’s 15-month-long interest-rate hike campaign sent mortgage rates soaring above 7% for the first time in nearly two decades, home prices have hardly budged. That is at least in part due to a lack of available homes for sale.

US housing
Homes in Rocklin, California, on Dec. 6, 2022.  ( Photographer: David Paul Morris/Bloomberg via Getty Images / Getty Images)



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