Jeremy Siegel, a professor at Wharton, predicts that the housing market will see negative growth as a result of future Federal Reserve interest rate increases that will raise mortgage rates even further.
The housing industry has seen a slowdown due to the average rate for a 30 year fixed mortgage more than double this year. The average 30-year mortgage rate this week was 6.81%, according to data from Freddie Mac, which was near its highest level since 2002.
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Siegel recently told CNBC that housing prices fall 10% to 15%, and that housing prices are accelerating on the downside.
With such a drop, the median sales price of a single-family home in the US would drop from its second quarter record high of $440,000 to just over $375,000 — ouch.
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In response to the declining property prices, Siegel said he is more concerned that the Fed will do nothing.
The Fed will move too late as it attempts to control inflation by raising interest rates because of its concentration on trailing data.
The housing industry is the biggest offender in the government's poor monitoring of inflation, according to Siegel.
According to September's CPI report showing that inflation is still above expectations, Siegel said, let's go to the housing sector, up 7%. I am not surprised by the number because it is ridiculous. It doesn't mean what the actual rate of inflation is. The housing, which is almost 50% of the core rate, is the most distorted of all. Inflation data from October shows Shelter climbing 0.8% after climbing 0.7% in September.
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That is totally ridiculous. The housing prices are going down, not up, by every indicator. Even though they're going up from contracts from a year ago, they say I can't get the jumps on rent that I got earlier this year. That should be minus 7%, which by the way wipes out core inflation for September, Siegel said.
Siegel used the fact that housing indicators showed a 40% increase from March 2020 to the housing market's high this summer as an example of how the government misrepresents housing statistics.
Siegel said that because of the lag way it put the rising prices in.
The situation may persist for several months, at which point the economy may enter a recession if the Fed continues to raise interest rates, according to Siegel.
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