Why the ‘floor is coming’ for US housing market: economist

The US housing market is likely close to hitting a bottom following months of plummeting buyer demand and falling home prices, a prominent economist said in a note to clients this week.

Homebuilder confidence fell for the 11th straight month in November and plunged to its lowest level since June 2012, excluding the COVID-19 pandemic, according to the National Association of Home Builders’ monthly survey.

Sentiment in the housing sector has fallen rapidly during this year’s massive surge in mortgage rates – which topped 7% for a 30-year fixed-rate loan earlier this month before receding to 6.61% last week. Ian Shepherdson, chief economist at Pantheon Macroeconomics, argued that mortgage rates appear to have stabilized — a welcome sign for homebuilders and buyers alike.

“The good news for homebuilders is that a floor is coming,” said Shepherdson. “Mortgage rates have peaked, suggesting that demand will flatten in the months ahead, albeit at an extremely depressed level.”

“Accordingly, we expect housing starts and sales to bottom out early next year, even as the decline in home prices accelerates,” Shepherdson added.

The housing market has experienced a major slowdown in recent months as the Federal Reserve’s sharp interest rate hikes caused the spike in mortgage rates. Expensive monthly mortgage payments add to the financial pain for homebuyers who already faced high prices and decades-high inflation.

While sales activity could soon reach a floor, Shepherdson noted that home prices have “only recently started to decline on a sequential monthly basis.”

Steeper mortgage rates have crushed buyer demand and forced many prospective sellers to slash their listing prices in an effort to attract interest.

“Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce,” said National Association of Home Builders Chairman Jerry Konter.

As The Post reported, Shepherdson predicted in October that US home prices would decline by up to 20% within the next year as the housing correction unfolds.

Similarly, researchers at the Dallas Fed said in a recent report that mortgage rates have “boost[ed] the odds of a severe house price correction.” The researchers noted prices could fall by 20%.