US home prices are on the cusp of a major correction due to “cratering” demand among cash-strapped buyers, a prominent economist warned in a note to clients on Tuesday.
Ian Shepherdson, a chief economist at Pantheon Macroeconomics, noted that single-family home listings have surged by 40% in the last four months even as unit sales plummet due to sky-high prices and rising mortgage rates.
Given current conditions, US home prices are likely “about 15 to 20% overvalued” compared to incomes, according to Pantheon’s calculations – setting the table for major declines.
“The market is adjusting to a new reality, with much lower sales volumes and far more inventory. Prices, therefore, have to adjust to the downside, likely quite substantially,” Shepherdson said.
Sales of new single-family homes plunged by 8.1% to 590,000 units in June, Commerce Department data showed on Tuesday. Sales have now fallen to their lowest level since 2020, according to Reuters.
Index Fell for Third Straight Month, as Consumers’ View of Present Situation Weakened
The Conference Board Consumer Confidence Index® decreased in July, following a larger decline in June. The Index now stands at 95.7 (1985=100), down 2.7 points from 98.4 in June. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—fell to 141.3 from 147.2 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—ticked down to 65.3 from 65.8.
“Consumer confidence fell for a third consecutive month in July,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The decrease was driven primarily by a decline in the Present Situation Index—a sign growth has slowed at the start of Q3. The Expectations Index held relatively steady, but remained well below a reading of 80, suggesting recession risks persist. Concerns about inflation—rising gas and food prices, in particular—continued to weigh on consumers.”