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Economist Who Called 2008 Housing Bubble Warns of Home Price Declines

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  • Monthly supply of housing surged in April as demand was crushed by rising mortgage rates.
  • Ian Shepherdson warns that home sales will decline further.
  • He also warned that home prices could also fall in the short term.

Music is starting to stop in the housing market The hottest home purchase period in history..

As Federal Reserve raises interest rates Mortgage rates have skyrocketed by about 50% to curb high inflation in 40 years. It crushed purchase demand as monthly home payments became higher and monthly supply of homes surged to the highest level in 12 years.

Monthly supply of housing on US charts


St. Louis Federal Reserve Bank


according to Ian ShepherdsonChief Economist Pantheon macroeconomics For those who called the housing bubble in the mid-2000s, the slowdown will be exacerbated.

In a recent note to clients, Shepherdson warned that the bottom of mortgage demand was “not yet visible.”

“This isn’t rocket science. If the monthly payments of prospective home buyers increase by 50% in eight months, demand will decrease,” he said. “Expect more of the same, which will eventually lead to closed existing home sales.”

Pending Home Sales and Mortgage Applications


Pantheon macroeconomics


In addition to declining demand, Shepherdson warned that the growth of new homes under construction would contribute to slowing activity.

“New home inventories are now from 6.9 months to 9.0 months in March, much higher than existing home inventories, only 2.1 months,” Shepherdson wrote in a note to customers. “Housing builders have sought to take advantage of existing housing shortages by adding inventories and raising prices, which have risen by about 20% over the past year. However, demand has plummeted and existing This strategy is unsustainable due to increased home inventories.% More will come between February and April. “

“In short, the party is over,” he added.

Monthly supply of housing, existing and new


Pantheon macroeconomics


All this means that rising house prices will continue to slow and may even fall in the short term, he said.

“A temporary recession is perfectly possible as the market adapts to the plunge in demand and inventories surge,” Shepherdson added.

“Price growth will slow sharply, even before the April surge, which is a significant overshoot compared to inventory levels,” he said in another memo. “As the market finds a new equilibrium, we cannot rule out a short-term absolute decline.”

Monthly supply of homes and home prices


Pantheon macroeconomics


However, Shepardson said that unlike the mid-2000s, the current market is far less floating rate mortgages, so prices will not fall as persistently, and many homeowners said last time real estate. Said he was forced to sell. About 40% of mortgages were adjustable in the mid-2000s compared to the current 1%.

He also said that the slowdown in the housing market would not disrupt the economy as it did around 2008. But he warned that certain areas of the economy would “suffer.” These include materials, appliances and furniture.

“Housing builders, suppliers, and retailers of home-sensitive items will suffer,” he said.

As mortgage rates soar, concerns about the housing market bubble are rising. However, most experts say these concerns are misguided and that home prices are unlikely to fall significantly.e. Many say the supply is relatively low as the reason why the bubble is not seen.

“The main reason we think there is no US housing bubble is that housing supplies are so tight,” said Daan Struyven, senior global economist at Goldman Sachs. I also admit that is an issue. “In fact, first-quarter homeowner vacancy rates fell to record lows of 0.8%. Similarly, monthly supply of existing homes for sale remains close to record lows in March. did.”

However, the dynamics of supply are evolving rapidly. The Census Bureau and the Department of Housing and Urban Development reported a surge in housing supply months this week (see the first graph above). This was partially fueled by chilling demand and a surge in new housing inventories.

Others, such as David Rosenberg, President and Chief Economist at Rosenberg Research, and Desmond Lachman, Senior Fellow at the American Enterprise Institute, say there will be even more downturns.

“As mortgage rates rise sharply and affordable price constraints become so severe, the bursting of this bubble and the corresponding negative asset effects will be spectacular,” Rosenberg said. Said recently.

Luckman said a 15-20% decline is expected.

Still, Shepherdson isn’t looking for a sharp fall in home prices, but is looking for a slower rise and the possibility of a short-term fall as the market is gaining a foothold in the changing dynamics.

But shift is a keyword. Market conditions could worsen for future sellers as the situation progresses and the Fed continues to hike to slow consumer demand.

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