Buckle up for a precipitous freefall in real estate prices and US housing is in a huge bubble, experts say.  Here's how far Jeremy Siegel, Paul Krugman and 5 others think it could go.

Buckle up for a precipitous freefall in real estate prices and US housing is in a huge bubble, experts say. Here’s how far Jeremy Siegel, Paul Krugman and 5 others think it could go.

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Signs of tension are building up in the US housing market.(Photo by SAUL LOEB/AFP via Getty Images)

  • The US housing market is collapsing as the Fed’s rapid interest rate hikes send mortgage costs skyrocketing.

  • Home sales have been falling for 8 months, and prices are falling. But economists say the worst is yet to come.

  • Here’s what Jeremy Siegel, Paul Krugman and 5 other top experts are saying about how painful things are going to get.

Alarm bells are already ringing for US homeowners as soaring mortgage rates scare off buyers – and the crash in the US housing market will only get worse, experts say.

The signs of stress became obvious. Recent data showed that in September existing home sales fell 24% – the eighth consecutive monthly decline, marking the longest decline since 2007. Home starts fell and the number of home listings new homes fell 22%.

Behind the deteriorating housing market is the Federal Reserve, which has been aggressively raising interest rates to combat 40-year high inflation. This drove mortgage rates to 20-year highs.

It has made buying a home more expensive, prompting buyers to shy away – mortgage applications are at their lowest since 1997. Meanwhile, growing worries about a coming economic recession have dampened demand.

Here’s what 7 top experts are warning about what will happen next.

Jeremy Siegel, professor of finance at Wharton

“I expect house prices to fall 10% to 15% and house prices to accelerate downward,” Siegel told CNBC in a recent interview, noting that house prices, regardless of the indicator, fall.

In a separate interview with CNBC, he said: “I think we’re going to have the second biggest drop in housing prices since the post-war period over the next 12 months. That’s a very, very factor. important for wealth. [and] for fairness in the housing market.”

Mark Zandi, Chief Economist at Moody’s Analytics

“Hold on. Assuming rates stay close to their current level of 6.5% and the economy steers clear of the recession, national house prices will drop almost 10% from peak to trough,” he said. he declared. said in a recent tweet. “Most of these declines will happen sooner rather than later. And house prices will drop 20% in a typical recession.”

In a recent report on housing, he said: “The housing market is the most interest rate sensitive sector of the economy. It is at the forefront of the fallout from the Fed’s efforts to reduce inflation .”

“There is going to be a downturn in the real estate market from coast to coast. It will be brutal. No part of the market is immune.”

David Rosenberg, veteran economist and Rosenberg Research Leader

“We have a huge housing bubble right now. Most of the household balance sheet is residential real estate, and that’s equities,” Rosenberg said in a RealVision interview published this week.

The economist pointed to the Fed’s tightening efforts to bring inflation down from recent rates of 8-9% to its target of 2%.

“They want the stock market down. They want house prices down. Why? Asset deflation. It’s 100% necessary.”

Paul Krugman, Nobel Prize-winning economist

The veteran economist agrees that a serious downturn is on the way, but he expects it will be some time before higher rates really affect home prices and demand.

“The Fed’s rate hikes have indeed led to a sharp drop in building permit applications. However, construction employment hasn’t even started to decline yet, likely because many workers are still busy complete homes started when rates were lower,” he said in a recent comment.

“And the broader economic effects of the coming housing crisis are still months away,” he said.

Ian Shepherdson, Chief Economist at Pantheon Macroeconomics

Shepherdson thinks the sharp drop in home sales hasn’t bottomed out yet, and even buyers aiming for cheaper homes will still face bigger mortgage payments.

“We expect a decline of 15-20% over the next year, to restore the pre-COVID price-to-income ratio,” the strategist said in a note last week.

“In short, housing is in freefall. So far, most of the hit is in sales volumes, but prices are now falling too, and they still have a long way to go.”

Don Peebles, real estate developer and CEO of Peebles Corp.

“I think the housing market is about to go into a recession. We’re going to see some price drops — price drops have already started to happen,” Peebles told Fox News last week.

“I see it as if we had this freight train out of control, speeding, speeding with low interest rates, and nobody looked to start slowing it down or hitting the brakes. Now, all of suddenly, it’s going to come crashing down on the station,” he said.

Chen Zhao, head of economic research at real estate broker Redfin

“The housing market is going to get worse before it gets better,” Chao said last week, alongside a report that found a record 22% of homes for sale had a price drop in September.

“With inflation still rampant, the Federal Reserve will likely continue to raise interest rates. That means we may not see high mortgage rates – the main killer of housing demand – come down until the start or middle of 2023.”

Read the original article on Business Insider


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