David Nadelle
·2 min read
Citing the large disparity between property costs and buyer incomes, market expert Ian Shepherdson believes that home prices may fall another 15% in 2023.
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Shepherdson, the founder and chief U.S. economist of Pantheon Macroeconomics, predicted the eventual housing crash of 2008 in 2005. He recently suggested that the price-income gap, coupled with increased house supply and high mortgage rates, may precipitate a period of continued deceleration of the housing market rather than a significant rebound this year.
In a Jan. 23 analyst note to clients, Shepherdson and Pantheon’s senior U.S. economist, Kieran Clancy, wrote that market uncertainty should continue this year as house prices — while declining every month — remain at an unaffordable level.
According to Business Insider, although down significantly from pandemic levels, home prices now are near the unaffordability levels seen in the early 1980s, per National Association of Realtors’ Housing Affordability Index data.
As Fox Business reported, house prices rose by 2% year-over-year (YoY) in Dec. 2022, to a median price of $372,700 for an existing home. December was the 11th month in a row that saw home sales decrease and yet, according to the NAR, it was the 130th consecutive month of YOY price increases.
“Mortgage rates have fallen by 93bp [basis points] since late October, and demand looks to be rebounding — modestly — after collapsing last year,” read Shepherdson and Clancy’s Pantheon note. “To be clear, any rebound in sales from here will be small; monthly payments for a new buyer of an existing home have fallen, but were still up 54% year-over-year in December.”
In a client statement written in Oct. 2022, Shepherdson stated he saw “no floor in sight” for declines in house sales but was optimistic that continued price drops would eventually help to balance out the market sometime in 2023.
“But prices have to fall substantially in order to restore equilibrium; the supply curve for housing is not flat, so the plunge in demand will drive prices down,” he said. “We expect a drop of 15-to-20% over the next year, in order to restore the pre-Covid price-to-income ratio.”
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Other experts have echoed this line of thought, with KPMG analysts suggesting a possible 20% decline in prices and Goldman Sachs and Morgan Stanley predicting 6.1% and 4% drops, respectively, this year.
“The sharpest declines for the US housing market are now behind us,” read a Goldman Sachs team research note. With regard to mortgage rates, the team added, “Since reaching 20-year highs of over 7% in October, mortgage rates have fallen by a percentage point, causing our housing affordability index to recover very slightly.”
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This article originally appeared on GOBankingRates.com: Economist Who Predicted the 2008 Housing Crash Says Home Prices Will Drop 15% in 2023
As an expert in economics and real estate, my in-depth knowledge allows me to provide a comprehensive analysis of the information presented in the article by David Nadelle on February 8, 2023. Ian Shepherdson, the founder and chief U.S. economist of Pantheon Macroeconomics, is a recognized authority in the field, having accurately predicted the housing crash of 2008 in 2005.
Shepherdson highlights the significant disparity between property costs and buyer incomes, asserting that home prices may experience a further 15% decline in 2023. He points to the price-income gap, increased house supply, and high mortgage rates as contributing factors that may lead to a continued deceleration of the housing market rather than a notable rebound in the coming year.
In a Jan. 23 analyst note co-authored with Pantheon's senior U.S. economist, Kieran Clancy, Shepherdson emphasizes the ongoing market uncertainty due to unaffordable house prices. Despite monthly declines, home prices, as reported by Business Insider, are still close to unaffordability levels comparable to those seen in the early 1980s, according to the National Association of Realtors’ Housing Affordability Index.
The article cites data from Fox Business, reporting a 2% year-over-year increase in house prices in December 2022, reaching a median price of $372,700 for existing homes. Interestingly, despite 11 consecutive months of decreasing home sales, according to the NAR, December marked the 130th consecutive month of year-over-year price increases.
Shepherdson acknowledges the recent decline in mortgage rates and a modest rebound in demand, but he anticipates only a small rebound in sales. He asserts that prices must fall substantially, by 15-to-20% over the next year, to restore the pre-Covid price-to-income ratio and achieve market equilibrium.
The economist's October 2022 statement expressed optimism about continued price drops eventually balancing the market in 2023, stating that there was "no floor in sight" for declines in house sales. Other experts, such as KPMG, Goldman Sachs, and Morgan Stanley, share a similar perspective, predicting possible declines of 20%, 6.1%, and 4%, respectively, in home prices for the year. Goldman Sachs notes that the sharpest declines for the U.S. housing market are likely behind us, attributing the recovery in their housing affordability index to a one-percentage-point decrease in mortgage rates since October.
In summary, the article provides a detailed overview of Shepherdson's expert analysis, supported by data from various sources, indicating a potential decline in home prices in 2023 and the overall state of the U.S. housing market.
