US house prices could tumble another 8% this year as higher interest rates and stricter lending standards crimp demand, KPMG has warned.
Home prices, as measured by the Case-Shiller index, are likely to fall 10.5% from their June peak by the end of this year, Diane Swonk and Yelena Maleyev predicted in a March report. Swonk is the chief US economist of the “Big Four” accounting firm, while Maleyev is another in-house economist.
“The housing recession is expected to deepen as the Federal Reserve doubles down on its efforts to derail inflation,” they wrote. “The pace at which home values and rents fall will play a key role in how fast inflation cools.”
The pair pointed to the Fed hiking interest rates over the past year or so, from nearly zero to upwards of 4.75%, as a key driver of the projected decline. Higher rates translate into more expensive mortgages, which decrease the affordability of homes for buyers and push down prices.
The KPMG economists also flagged tighter lending among banks. A trio of US lenders folded last month, sparking fears of more bank runs and stoking concerns of a credit crunch as banks look to take fewer risks.
Moreover, the pair cited rising insurance costs, mounting real estate taxes, and institutional investors withdrawing from the market as other headwinds for the housing market.
They also emphasized the surge in home prices during the pandemic easily outpaced their climb during the mid-2000s housing bubble, and described at least part of the increase as “froth.”
Insider reached out to Swonk and Maleyev for an update as the report was published last month, but didn’t immediately receive a response.
The Case-Shiller index fell by 0.5% in January, its seventh consecutive monthly decline. Before seasonal adjustment, it’s now down 5.1% from its peak.
Swonk and Maleyev aren’t the only experts sounding the alarm on the housing market. Yale economist Robert Shiller recently warned that home prices are still “very, very high by historic standards.”
Meanwhile, José Torres, a senior economist at Interactive Brokers, told Insider that prices could fall another 11% over the next year, or 15% from peak to trough.
Source: markets.businessinsider.com
