Tag: recession

US home price plunge is ‘just beginning’ as housing market rapidly cools: economist

A substantial plunge in US home prices is likely “just beginning” as decades-high mortgage rates cause a downturn in the housing market, a prominent economist cautioned Friday.

The warning from Pantheon Macroeconomics chief economist Ian Shepherdson followed more dismal data that showed a slowdown in housing activity.

Pending home sales – a measure based on signed contracts – plunged 10.2% in September, according to the National Association of Realtors.

The pending home sales index has plummeted 35% compared to one year ago, according to Shepherdson.

But cratering demand has only recently started to result in lower home prices – meaning more financial pain is on the way for prospective sellers.

“The bad news is that prices have much further to fall before the market adjusts fully to the collapse in demand,” Shepherdson said in a note to clients.

“Home prices have only recently started to decline on a month-to-month basis,” Shepherdson added. “The resilience in prices was made possible by a lack of existing homes on the market, but supply is now rising — albeit slowly — as homeowners who previously held off on selling worry that further delays will mean they fetch a much lower price.”

Mortgage rates are above 7%.
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As The Post reported, Shepherdson recently warned he expects home prices to fall by 20% by next year – a substantial correction after values hit record highs during the pandemic-era housing boom.

Mortgage rates topped 7% this week for the first time since 2002, according to Freddie Mac. Long-term rates have spiked as the Federal Reserve hikes interest rates to combat inflation.

“The good news is that mortgage rates likely are close to a peak, and if they remain around their current level, sales will find a floor early next year,” Shepherdson added.

Home for sale
Home prices are falling fast in some markets.
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Sellers are slashing their asking prices to entice buyers who are facing the worst affordability crunch in decades. Mortgage payments are commanding a much larger share of household income, and while home prices are falling fast, they’re still higher than they were one year ago.

NAR Chief Economist Lawrence Yun warned that 7% mortgage rates are the “new normal” for buyers until the economy begins to improve.

“Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers,” Yun said.

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Consumer prices — a key inflation gauge — hotter than expected in August

A key inflation indicator showed higher-than-expected increases in core prices in August, adding more pressure on the Federal Reserve to act despite the risk of a deeper recession.

Consumer prices increased by 6.2% in August compared to the same month one year ago, according to the Commerce Department’s Personal Consumption Expenditures index — the Fed’s preferred measure of inflation. The annual rate was down from 6.4% in July.

Prices rose by 0.3% compared to the previous month.

The core PCE, which excludes volatile food and energy prices, increased by a hotter-than-expected 4.9% year-over-year in August, or by 0.6% compared to July.

Ahead of the release, economists expected core PCE inflation to increase by 4.7% year-over-year and by 0.5% compared to July.

The PCE inflation gauge is one of many data points the Federal Reserve uses to inform its policy path. Earlier this month, the Fed hiked its benchmark interest rate by three-quarters of a percentage point for the third consecutive time as it doubled down on the fight against inflation.

The Fed’s hawkish stance has spooked investors who fear the central bank’s rate hikes will tip the US economy into a deep recession. Meanwhile, the Fed has pledged to adjust its path based on the data it receives.

“The [Federal Open Markets Committee] is strongly resolved to bring inflation down to 2% and we will keep at it until the job is done,” Fed Chair Jerome Powell said at a press conference earlier this month.

Ex-Treasury Secretary Larry Summers warned this week that the level of global market risk is similar to conditions seen prior to the Great Recession – and pointed to inflation-related discomfort as a key obstacle for policymakers.

The Fed is expected to enact more rate hikes this year.
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Chicago Fed President Charles Evans, a non-voting member of the rate-setting FOMC, said he was “a little nervous” the Fed was hiking rates too rapidly to fully assess the impact on markets.

Another closely watched gauge, the Consumer Price Index, showed earlier this month that inflation ran at a hotter-than-expected 8.3% in August. Core CPI inflation, which excludes volatile food and gas prices, rose 6.3% year-over-year — up sharply from the rate of 5.9% seen in June and July.

Market analysts are increasingly fearful of a global recession.
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As The Post reported, inflation has increased 13% since President Biden took office. Critics of the Biden administration argue the president’s government spending programs and restrictive energy policies have helped to fuel inflation.

Meanwhile, Biden and his allies have argued inflation is showing signs of improvement – and largely placed the blame for higher prices on aftershocks related to the COVID-19 pandemic as well as Russian President Vladimir Putin’s invasion of Ukraine.

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