Home prices could fall by 20 percent in the US

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Home prices in the United States could fall as much as 20 percent within the next year as rising mortgage rates slow home buying.

Sales of existing homes fell for an eighth straight month in September, falling 1.5 percent month-over-month to an adjusted annual rate of 4.71 million, according to the National Association of Realtors. The decline is the longest since 2007. Sales are down nearly 24 percent from a year ago.

According to Ian Shepherdson, chief economist at Pantheon Macroeconomics. Shepherdson expects home prices to fall 15 percent to 20 percent over the next year because of cratering demand.

“If you’re planning to move houses and need a new mortgage, you’re going to face a big rate hike,” Shepherdson said.

“But prices must fall significantly in order to restore balance; the supply curve for housing is not flat, so a drop in demand will lower prices,” he added.

Mortgage rates have deterred would-be buyers who already face the twin crisis of decades-high inflation and high prices that rose to record levels during a pandemic-era housing boom. The market has cooled significantly as the affordability crisis pushes more buyers and sellers to the sidelines.

Pantheon expects home sales to decline until early next year as mortgage applications fall sharply in response to higher rates.

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