US home prices could plunge by nearly 20% as erratic market activity and rising interest rates drive a “risk of a deep global housing slide,” the Federal Reserve’s own researchers said in a report Tuesday.
Dallas Fed economists pointed to signs of trouble in the US and German housing markets that “pose a vulnerability to the global outlook because of the size of those nations’ economies and significant cross-border financial spillovers.”
The researchers noted “exponential growth in key housing market indicators,” such as home-price-to-rent ratio and real house prices, signs of an affordability crisis.
Price-to-rent ratio compares home prices to the cost of annualized rent.
US home prices would need a 19.5% correction “to bring the US in line with its fundamentals,” researchers Lauren Black and Enrique Martinez-Garcia said in the report.
Additional increases in mortgage rates, which doubled over the last year as the Fed implemented a series of interest rate hikes to tame inflation, could exacerbate the problem.
You can’t give away a house at 7% interest rates !!!