The US housing market is in “much worse shape” than the Fed admits, the economist warns

The US housing market is in significantly worse shape than the Federal Reserve says, a top economist has warned – and prices are set to fall sharply soon.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the outlook for home sales is even bleaker than the Fed has indicated and the worst for home prices is yet to come.

He tweeted on Tuesday that he had been “bearish as hell on real estate for months” – meaning he predicted a significant drop in the market.

A bear market is a market where prices are falling and people are selling.

Attaching a chart showing the dramatic downturn, he said: “Well, I feel vindicated.”

New single-family home sales in July hit their lowest level in almost seven years, falling 12.6 percent to a seasonally adjusted annualized rate of 511,000.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects more bad news in the housing market

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he expects more bad news in the housing market

Sales rose in the Northeast but fell in the West and Midwest and the South, where demand has been strongest in recent years.

Revenue fell 29.6 percent year-on-year in July.

They peaked in January 2021 at 993,000 units, the highest level since the end of 2006.

Shepherdson said the situation was worse than the data showed.

“The housing market is in a lot worse shape than the Fed cares to admit,” he wrote in a note to clients.

“But policymakers have made it clear that inflation is their primary goal and housing is collateral damage.”

The housing stock is at its highest level since April 2009 as mortgages become more expensive and other financial pressures – high gas prices, rising food prices – continue to be felt.

Mortgage rates have nearly doubled since January, rising to 5.13 percent on a 30-year loan last week, according to Freddie Mac.

The Fed’s efforts to lower inflation by slowing spending has resulted in a significant slowdown in home sales.

Federal Reserve Chairman Jerome Powell is seen July 27

Federal Reserve Chairman Jerome Powell is seen July 27

The consumer price index of inflation stood at 9.1 percent in June, a 40-year high. In July it fell slightly to 8.5 percent.

But Shepherdson said he expects new home prices to continue to fall.

“We expect a sharp month-on-month fall in new home prices for the foreseeable future,” he said.

Shepherdson has repeatedly expressed his concerns about the housing market.

In July, he warned he expected house prices to fall “significantly” due to “collapsing” demand and said houses were “overvalued by about 15 to 20 percent” relative to income.

Analysis by Zillow this week showed that US home values ​​fell in July for the first time in a decade, falling 0.1 percent from the previous month.

After the Fed’s July meeting, Jerome Powell, the bank’s chairman, said he believed the slump would help people moving up the housing ladder.

“I would say if you’re a homebuyer, someone or young person looking to buy a home, you need a little reset,” Powell said.

“We need to get back to a place where supply and demand are coming together again and where inflation is low again and mortgage rates are low again.”

On Monday, a study released by real estate broker Redfin found that a high proportion of home sellers lowered their asking price in July, particularly in former pandemic boomtowns.

In Boise, Idaho, which has been a top West Coast destination for remote workers during the pandemic, 70 percent of offers were cut in July, down from just a third a year ago.

In Denver, 58 percent of listings were reduced last month, while 56 percent of listings in Salt Lake City were eliminated from the original asking price.

“Individual home sellers and builders were both quick to lower prices early in the summer, largely because they had unrealistic expectations for both price and deadlines,” said Boise Redfin agent Shauna Pendleton.

“They overpriced because their neighbor’s house sold for an exorbitant price a few months ago and expected to get multiple offers the first weekend because they heard stories about it,” she added.

The 10 cities that saw the largest share of price cuts over the past month are shown above

The 10 cities that saw the largest share of price cuts over the past month are shown above

A housing development can be seen in Boise, where 70% of housing listings were cut below their original asking price last month when sellers were confronted with their

A housing development can be seen in Boise, where 70% of housing listings were cut below their original asking price last month when sellers were confronted with their “unreasonable expectations”.

“My advice to sellers is to price their home right from the start, accept that the market has slowed and understand that the sale can take longer than 30 days. If someone is selling a nice house in a desirable area, they shouldn’t have to lower their price.’

Although industry data shows home prices remain higher than a year ago across the country and in nearly all markets, supply cuts have increased dramatically as high expectations from sellers meet cold reality.

Redfin said the national share of homes for sale with prices falling hit a record high in July.

None of the 97 cities included in the analysis had less than 15 percent of the housing offers that were reduced from the original asking price.

More than half of the cities with the largest share of price declines — Boise, Denver, Tacoma, Sacramento, Phoenix, San Diego, and Portland — were among the 20 real estate markets that cooled the fastest in the first half of 2022.

Redfin notes that these markets had attracted large numbers of eager homebuyers during the pandemic, as technicians and other workers fled pricier markets and house prices in smaller towns soared.

In Denver, 58 percent of housing listings were reduced last month

In Denver, 58 percent of housing listings were reduced last month

Home prices remain solidly high, with the nationwide median selling price in July of $403,800, up 10.8% year-on-year and just below June's record high

Home prices remain solidly high, with the nationwide median selling price in July of $403,800, up 10.8% year-on-year and just below June’s record high

But now, in a cooling market, buyers have the upper hand and many sellers are having to lower their asking prices to close a deal.

The Redfin study found that McAllen, Texas, had the lowest proportion of listing cuts in July, with just 15.7 percent of listings discontinued — although that was still up from the 11.7 percent recorded a year ago.

In a notable exception to this trend, several northern Illinois markets saw fewer price cuts in July than a year ago, suggesting that Chicago’s housing market is picking up steam.

Chicago and nearby Elgin and Lake Counties, Illinois all saw lower rates of price declines than a year ago.

Although home transactions fell, prices remain solidly strong, with the nationwide average selling price in July of $403,800 representing a 10.8 percent increase from a year earlier

Although home transactions fell, prices remain solidly strong, with the nationwide average selling price in July of $403,800 representing a 10.8 percent increase from a year earlier

The average interest rate on a 30-year fixed-rate mortgage this week was 5.13 percent

The average interest rate on a 30-year fixed-rate mortgage this week was 5.13 percent

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