NewslettersSign inAPP
spainSPAINargentinaARGENTINAchileCHILEcolombiaCOLOMBIAusaUSAmexicoMEXICOperuPERUlatin usaLATIN USAamericaAMERICA

US NEWS

Experts claim house prices are on the verge of collapse; what’s the reason?

The US housing market has recorded years of sustained growth but there is now concern that property prices are due an adjustment.

Update:
Experts claim house prices are on the verge of collapse
CHRIS HELGRENREUTERS

Home prices in the United States could fall abruptly in the coming months as experts predict that a significant market adjustment is on the cards. The number of home sales has fallen for nine months straight and, with stock beginning to pile up in many markets, prices will have to come down.

“In one line: Collapse in prices is coming,” said Kieran Clancy, senior economist at Pantheon Macroeconomics. Projections from the firm claim that in some areas prices could fall by about 20% from their peak in June.

Likewise, Goldman Sachs have recently adjusted their outlook for 2023. They had expected house prices across the board to remain flat but have now changed their projection to a 4% fall. Goldman expects “unsustainable levels of housing affordability to continue weighing on housing demand”, which will contribute to a fall in prices.

The way that the data is collected and used means that the collapse may have already begun. Adam Slater, a lead economist at consultancy firm Oxford Economics, suggested that we could already be in the midst of a decline.

Data lags probably mean that most markets are now seeing falling prices,” Slater said. “We’re in the early period in quite a clear downturn now and the only real question is how steep and how long it’s going to be.”

Why might house prices fall?

During the pandemic many countries around the world recorded a boom in the housing market, with property prices reaching record levels. The pandemic-era restrictions slashed productivity and interest rates were cut significantly.

This meant that mortgages, which are closely tied to interest rates, suddenly became very affordable.

In addition to this, the pandemic also changed how people worked and lived, with many people given the opportunity to work remotely for the very first time. Those months working and living in the same space encouraged many people to look for larger, more permanent homes.

The early part of the pandemic brought favourable conditions for prospective homeowners, but the rush to buy has now cooled as house prices and interest rates have risen. For parts of 2021 and 2022, house prices in the US rose at the fastest rate seen since the 1970s.

A correction in the market seems inevitable given the astounding growth recorded in the past two years. However the length and the depth of the fall could well depend on factors outside of the housing market.

The US’s post-pandemic jobs market recovery has been a major point of pride for President Biden and he set a new record for the most jobs added in his first year in office. If the jobs market stay solid then there should be a fairly steady stream of prospective buyers and a limited number of sellers.

“History shows that if labor markets can remain strong, then the chances of a more benign correction are higher,” said Innes McFee, Oxford Economics’ chief global economist.

A problem would arise if unemployment increases, raising the number of forced sellers and driving down house prices. For now the jobs market remains fairly strong but if economic growth continues to slow then the demand for workers could begin to fall.

Rules

To be able to comment you must be registered and logged in. Forgot password?