US home prices set to fall by 20% by mid-2023

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US home prices set to fall by 20% by mid-2023

The US home prices are finally falling from a record high earlier this year, and could fall by as much as 20% by mid- 2023, according to a top economist.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in an analyst note released this week that home prices have already declined 5% from their May peak. His projections show that existing home sales fell by 0.7% in August, the third monthly decline.

Shepherdson wrote in the note that the sales trend hasn't gone well and prices are falling.

The housing market has had to pull back spending because of the high inflation and rising borrowing costs, which has resulted in a lethal combination for the housing market. Shepherdson and many experts agree that the housing market is currently experiencing a recession.

The current recession is unlikely to affect the rest of the U.S. economy, unlike the 2008 housing crash that helped fuel a global financial crisis. That's because the market has fewer risk factors than the mid-2000s housing bubble.

Inflation and rising borrowing costs have proven to be a deadly combination for the once red-hot housing market, forcing potential buyers to pull back on spending.

The policy is at the fastest rate in three decades as it tries to crush runaway inflation. The five consecutive interest rate increases this year will be approved by policymakers, including three consecutive 75 basis-point hikes in June, July and September. Chairman Jerome Powell said that another 125 basis points of rate increases are on the table this year, which is on the table at the end of their latest meeting this week.

The average mortgage rate for a 30 year fixed mortgage rate is above 6%, the highest since the 2008 recession, according to Freddie Mac.

The National Association of Realtors said on Wednesday that home prices fell slightly from the median high of $413,800 in June to $389,500. Home prices are up 7.7% from the same time a year ago, the 126th consecutive month of year-over-year home price increases. That is the longest-running streak on record.