US home prices have soared over the last decade, but could soon be on their way down.
The housing market will continue to plummet as there's "no floor in sight," according to Pantheon Macroeconomics.
Chief economist Ian Shepherdson wrote in a note Thursday that home prices could fall as much as 20%.
His warning came after existing home sales dropped for an eighth consecutive month, the longest slump since 2007.
The housing market crash has yet to find a bottom, setting up home prices for a steep dive in the year ahead, according to Pantheon Macroeconomics.
"Eight straight declines in sales and no floor in sight," Pantheon chief economist Ian Shepherdson wrote in a note on Thursday.
He added that the cumulative fall in sales from the peak in January is now 27%, "but this is not the floor." Shepherdson also noted that because mortgage rates have climbed to nearly 7%, which has dampened borrowing demand, the result will be a continued decline in home sales until early 2023.
"By that point, sales will have fallen to the incompressible minimum level, where the only people moving home are those with no choice due to job or family circumstances," he predicted. "Discretionary buyers are disappearing rapidly in the face of the near-400bp increase in rates over the past year."
Meanwhile, prices for existing homes have fallen on a sequential basis for three straight months, sending the median price to $384,800 — the lowest since March.
But with mortgage rates rising, even prospective buyers who are looking to downgrade to a cheaper home would face bigger monthly payments, Shepherdson said, providing more incentive to stay put and constraining supply further.
"But prices have to fall substantially in order to restore equilibrium; the supply curve for housing is not flat, so the plunge in demand will drive prices down," he said. "We expect a drop of 15-to-20% over the next year, in order to restore the pre-Covid price-to-income ratio."
The grim outlook follows similarly stark comments from Wharton professor Jeremy Siegel, who said last week that he expected home prices to see the second-worst decline since World War II amid aggressive Fed rate hikes.
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