US home prices fall “significantly” due to “exhausted” demand

A leading economist warned in a note to clients on Tuesday that US home prices are on the cusp of a major correction due to a “collapse” of demand among cash-strapped buyers.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, points out that single-family home listings are up 40% in the past four months even as unit sales have plummeted due to skyrocketing prices and rising mortgage rates.

Given current conditions, US home prices are likely to be “overvalued by about 15-20%” relative to income, according to Pantheon calculations — setting the table for major declines.

“The market is adjusting to the new reality, with much lower sales volumes and much more inventory. Prices, should adjust to the downside, are likely to adjust significantly,” Shepherdson said.

Commerce Department data on Tuesday showed that sales of new single-family homes fell 8.1% to 590,000 units in June. Sales have now fallen to their lowest level since 2020, according to Reuters.

The Federal Reserve is set to raise interest rates again this week.
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New home sales numbers “closely” follow data on mortgage applications “which shows demand is waning,” according to Shepherdson.

Shepherdson also said that customers should “ignore” the latest data from S&P CoreLogic’s National Home Price Index, which showed a 1% monthly increase in prices nationwide in May.

The economist noted that the Case-Shiller report uses a three-month average and does not take into account rapid changes in the US housing market.

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New home sales fell in June.
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“The sellers market in early spring became a buyers’ market almost overnight, as their purchasing power of large numbers of potential buyers was drastically reduced — or taken out of the market altogether — due to rising mortgage rates,” Shepherdson said.

As The Post reported last week, the volume of mortgage loan applications recently reached a 22-year low as potential home buyers face double pressure from rising inflation and high interest rates.

House for sale
Home prices may be inflated by 20% relative to income, according to an economist.
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Mortgage rates have risen steadily as the Federal Reserve raises benchmark interest rates in an effort to cool the economy. The Fed is expected to enact another increase of at least three-quarters of a percentage point on Wednesday.

Pantheon Macro forecasts that current seasonally adjusted single-family home prices fell 0.4% from April to May and by another 1.8% from May to June.

Another prominent economist, Mark Zandi of Moody’s Analytics, recently warned that the housing market is on the cusp of a “deep freeze” due to rising mortgage rates.

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