- KPMG warns that the US housing market could fall 8% this year due to higher interest rates and stricter lending standards.
- Home prices, as measured by the Case-Shiller index, could fall 10.5% from their peak in June to the end of this year.
- The housing market recession could deepen as the Federal Reserve seeks to control inflation.
US home prices could fall another 8% this year as interest rates rise and tougher lending standards restrict demand, KPMG has warned.
Home prices, as measured by the Case-Shiller index, are likely to fall 10.5% from their peak in June to the end of this year, Diane Swonk and Yelena Maleyev predicted in a report published in March. Swonk is the chief US economist at the “Big Four” accounting firm, while Maleyev is another in-house economist.
“The housing market recession is expected to deepen as the Federal Reserve focuses on curbing inflation,” they wrote. “The speed at which home values and rents fall will play a key role in how quickly inflation cools.”
The KPMG economists pointed to the Federal Reserve raising interest rates over the past year, from near zero to more than 4.75%, as one of the main drivers of the projected decline. Higher rates translate into more expensive mortgages, making homes less affordable for buyers and pushing prices down.
KPMG economists also highlighted the credit crunch by banks as another factor affecting the housing market. The closure of three US lenders last month raised fears of more banks in jeopardy and fueled concerns about a credit crunch as banks seek to take less risk.
In addition, they pointed to rising insurance costs, rising real estate taxes, and the withdrawal of institutional investors from the market as other factors affecting the housing market.
They also stressed that the rise in home prices during the pandemic easily exceeded their rise during the housing bubble of the mid-2000s, describing at least some of the rise as “foam.”
Insider magazine reached out to Swonk and Maleyev for an update as the report was published last month, but did not immediately receive a response.
The Case-Shiller index fell 0.5% in January, its seventh consecutive monthly decline. Before seasonal adjustment, it has fallen 5.1% from its peak.
Swonk and Maleyev aren’t the only pundits sounding the alarm on the housing market. Yale economist Robert Shiller recently warned that home prices are still “very, very high by historical standards.”
Meanwhile, José Torres, chief economist at Interactive Brokers, told Insider that prices could fall another 11% over the next year, or 15% from peak to trough.
In summary, KPMG warns that the US housing market could see an 8% drop this year due to higher interest rates and stricter lending standards. The firm’s economists also cite rising insurance costs and real estate taxes, as well as the withdrawal of institutional investors from the market, as factors affecting the housing market. Although not the only alarm bell, KPMG economists indicate that the housing market recession could deepen as the Federal Reserve seeks to rein in inflation.
