An economist is predicting home prices could decline much more than anticipated as the housing bubble begins to pop.
A 15 percent drop in home prices for next year is “very conservative,” KPMG chief economist Diane Swonk told Fortune. Swonk’s forecast comes as the market’s correction from the pandemic-era frenzy has come into focus in recent months.
“Once you start the process of prices falling nationally, there is a self-fulfilling momentum to it because no one wants to catch a falling knife,” Swonk told the outlet.
The economist said the market was a “pandemic-induced bubble,” inflated by those relocating as they work from home. Rapidly spiking mortgage rates are contributing to the pop, sidelining would-be buyers and persuading would-be sellers to keep their lower locked rate.
Price growth hit a record slowdown in August, according to the Case-Shiller Index. Data showed a drop in year-over-year price growth for the second straight month and a 13 percent annual rise, compared to July’s 15.6 percent annual gain. The 2.6 percentage point decline was the sharpest month-to-month fall in the index’s 35-year history.
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The Federal Reserve’s plans to combat inflation with general interest rate hikes have sent mortgage rates to historic highs and flattened demand.
While a national price drop of more than 15 percent would be one of the biggest declines in history, Federal Reserve chairman Jerome Powell has pushed back on concerns the market is going to look like 2008 all over again.
“From a financial stability standpoint, we didn’t see in this cycle the kinds of poor underwriting credit that we saw before the Great Financial Crisis,” Powell said this month.
— Holden Walter-Warner