According to a leading economist, the housing market in the United States is in far worse health than the Federal Reserve is claiming.
The worst is yet to come for house prices, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics, and the forecast for home sales is considerably worse than what the Fed has predicted.
He forecast a substantial decline in the market in a tweet on Tuesday, saying he had been “bearish as hell about housing for months.”
He included a graph illustrating the sharp decline and said, “Well, I’m feeling justified.”
In July, sales of brand-new single-family houses dropped by 12.6% to a seasonally adjusted annual pace of 511,000, marking the lowest level in over seven years.
In July, sales were down 29.6% compared to the same month last year.
They reached their greatest level since the end of 2006 in January 2021, peaking at a pace of 993,000 units.
According to Shepherdson, the situation was worse than the statistics indicated.
He said in a message to clients that “the housing market is in considerably worse health than the Fed has been ready to recognise.”
However, policymakers have made it plain that inflation is their main goal and that housing is only a side effect.
As mortgage rates rise and other financial constraints like high gas prices and rising grocery expenses persist, the housing inventory is at its highest point since April 2009.
According to Freddie Mac, mortgage rates have increased by almost double since January, reaching 5.13 percent for a 30-year loan as of last week.
Home sales have significantly decreased as a result of the Fed’s efforts to reduce inflation by curbing expenditure.
In June, the Consumer Price Index reached a 40-year high of 9.1 percent. To 8.5 percent in July, it marginally decreased.
However, Shepherdson said that he anticipates a further decline in new house prices.
For the foreseeable future, he predicted that new property values will see substantial monthly reductions.
Shepherdson has voiced worry about the property market on many occasions.
In July, he issued a warning, predicting that demand would “crater” and cause housing prices to fall “significantly.” He also claimed that homes were “approximately 15 to 20 percent overpriced” in relation to salaries.
According to a Zillow research released this week, US house prices fell in July for the first time in ten years, down 0.1 percent from the previous month.
The Fed’s chairman, Jerome Powell, said after the July meeting that he believed the downturn would benefit those trying to enter the home market.
Powell added, “I’d suggest you need a bit of a reset if you’re a homebuyer, someone, or a young person trying to purchase a property.”
“We need to return to a situation where supply and demand are once again balanced, inflation is low once again, and mortgage rates are low once more.”
In a research released by the real estate company Redfin on Monday, it was discovered that a significant portion of property sellers reduced their asking price in July, especially in previous epidemic boomtowns.
Seventy percent of ads in Boise, Idaho, which was a popular location for West Coast remote workers during the epidemic, were reduced in July, up from only a third a year earlier.
Last month, 58 percent of homes were taken off the market in Denver, while 56 percent of listings in Salt Lake City had their original asking prices lowered.
According to Boise Redfin realtor Shauna Pendleton, “individual house sellers and builders were both eager to cut their prices early this summer, mostly because they had unrealistic expectations of both price and timing.”
They overpriced since their neighbor’s house just sold for an outrageous amount, and they had heard rumours that numerous bids would come in during the first weekend, so they had set their expectations accordingly.
“My advise to sellers is to price their house fairly from the outset, acknowledge the slowdown in the market, and be aware that it can take longer than 30 days to sell. Someone shouldn’t have to lower their price if they are selling a great house in a popular area.
Despite industry statistics showing that property prices are still higher than they were a year ago across the board and in almost every area, listing reductions have sharply risen as sellers’ high hopes collide with hard realities.
Redfin reported that in July, a record amount of houses were listed for sale throughout the country with price reductions.
There were less than 15% of homes listed for sale at a discount from the original asking price in each of the 97 cities examined.
Boise, Denver, Tacoma, Sacramento, Phoenix, San Diego, and Portland were among the 20 housing markets that cooled the quickest in the first half of 2022, accounting for more than half of the cities with the highest percentage of price decreases.
Redfin says that during the epidemic, when tech employees and other white collar workers left more expensive regions and pushed up property prices in smaller towns, those markets had drawn a sizable number of interested purchasers.
But as the market cools, buyers are in control and many sellers are being forced to lower their asking prices in order to make a sale.
Only 15.7 percent of listings in McAllen, Texas were reduced in July, according to the Redfin report, albeit that was still higher than the 11.7 percent rate recorded a year earlier.
In a remarkable break from the norm, some communities in northern Illinois witnessed fewer price reductions in July than they did a year earlier, suggesting that the Chicago housing market is picking up momentum.
Lower rates of price declines were seen in Chicago than they were in the neighbouring Illinois communities of Elgin and Lake County.