Fed Economist: U.S. Home Prices Could Plunge 20% Amid Risk of ‘Deep’ Housing Slide

Published by Fox Business | March 2, 2023

U.S. housing market faces affordability crunch, threat of 'deep' price slide

U.S. home prices could tumble as much as 20 percent as the highest mortgage rates in two decades threaten to trigger a “deep global housing slide,” according to research from the Federal Reserve Bank of Dallas.

The global housing market has become increasingly “frothy” since 2020 as a result of the pandemic boom, the Dallas Fed economists wrote in the analysis published this week. Although house-price growth has recently begun to moderate, there are still risks of a more severe decline.

The economists — Lauren Black and Enrique Martínez-García — pointed to signs of trouble detected in the U.S. and German housing markets that threaten to “pose a vulnerability to the global outlook because of the size of those nations’ economies and significant cross-border financial spillovers.”

Some of that peril, they said, stems from an affordability crisis. Signs of diminished affordability in the U.S. have usually preceded global deterioration.

“The possibility of a domino effect, where investors pull out of international housing seeking safety and liquidity elsewhere, also raises concerns of spillovers beyond Germany or the U.S. to the global economy,” they added.

For the U.S. housing market to return in line with its fundamentals, the researchers estimated that it would need to experience a 19.5 percent decline.

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