Home prices could fall faster if sellers flood the market

Home prices could fall faster if sellers flood the market
Home prices could fall faster if sellers flood the market
  • Home prices could fall at a faster pace, according to Pantheon Macroeconomics economist Kieran Clancy.
  • Previously reluctant home sellers could flood the market with inventory before prices fall further, he warned.
  • “We believe prices need to decline about 20% from their spring highs to reach a sustainable level,” he said.
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A drop in home prices could accelerate if once reluctant sellers start flooding the market with more supply in the rush to anticipate another drop.

That’s according to Pantheon Macroeconomics’ senior US economist Kieran Clancy, who pointed out that while home sales and construction have adjusted sharply to the collapse in demand, house prices still have a lot to come down.

A lack of supply means house prices have only recently begun to decline month-over-month, he said in a note, “but inventory is now rising as many sellers previously reluctant buyers start worrying that their home will get a much lower price if they keep waiting to sell.”

The warning comes as the National Association of Realtors reported that existing home sales have fallen for nine consecutive months and are down 31.7% since January.

Aside from the depths of the COVID-19 pandemic, sales haven’t been this weak since the start of 2012, Clancy said.

The drop coincides with soaring mortgage rates this year, which are near 20-year highs amid hawkish tightening by the Federal Reserve, although they have seen a slight decline this month.

So far, existing home inventory has hit 3.2 months of sales in October versus 1.5 months in January.

“This supply trickle could quickly become a flood, however, increasing the speed – if not the ultimate depth – of the decline in home prices,” Clancy said. “We think prices need to fall about 20% from their spring highs to reach a sustainable level.”

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