Economists Warn of Impending Drop in Housing Prices

Real Estate

Economists Warn of Impending Drop in Housing Prices

During the COVID-19 pandemic, as interest rates fell, the demand for housing soared. Sellers witnessed their homes being valued at nearly double what they were worth in 2019. However, according to economists and industry observers, this situation is about to change drastically. The housing market, which saw unprecedented growth, is now on the brink of a significant downturn.

Economic Predictions and Market Adjustments

Economists and real estate agents across the country have been warning that housing costs couldn’t sustain their high levels indefinitely. Experts have projected that if a recession occurs, house prices could plummet by around 20 percent within the next year. In some regions, prices may drop even more. Properties in California, for instance, are reportedly overvalued by as much as 72 percent. Homeowners should take note of their property’s current market value, as it might be the highest it will be for the foreseeable future.

Moody’s Bleak Forecast

Mark Zandi, the chief economist at Moody’s Analytics, has consistently held a pessimistic view of the housing market. Recent reports by Fortune magazine indicate that his forecasts have become even more grim. This comes amid debates among economists about whether the United States is already in a recession or merely headed toward one. The Federal Reserve’s efforts to prevent a recession by increasing interest rates are, paradoxically, exacerbating the housing market’s woes. With 30-year fixed mortgage rates soaring above 8.5 percent, the affordability of homes has sharply declined, deterring potential buyers.

Regional Market Bubbles

Several housing markets have been identified as experiencing significant bubbles. Cities like Charlotte, NC; Boise, ID; and Austin, TX are among the most overvalued. Many people who purchased homes in these areas paid premiums that exceeded the actual value of their properties by substantial margins. Industry experts predict that these bubbles are on the verge of bursting. The resulting negative equity could lead to a wave of foreclosures as homeowners find themselves unable to keep up with mortgage payments.

Impact of Federal Policies

Moody’s has suggested that the impending burst of the housing bubble is largely due to policy decisions made by the current administration in Washington, D.C. The Daily Mail reports that the Federal Reserve’s interest rate hikes are likely to push the U.S. into a recession, which in turn will drive down property prices. As mortgage costs rise, the demand for homes decreases, leading to an oversupply in the market. The housing inventory is now at its highest since 2009, creating a challenging environment for sellers.

Challenges for Sellers and Homebuyers

With the current economic climate, homebuyers are hesitant to take on new mortgages, further depressing demand. This reluctance is driven by the high interest rates, making homeownership less affordable. Sellers, on the other hand, face difficulties in offloading their properties, especially in overvalued markets. The resulting market stagnation affects everyone, from homeowners to potential buyers, and the situation is unlikely to improve in the near future.


The housing market, once buoyed by low interest rates and high demand, is facing a turbulent period. Rising interest rates, economic uncertainties, and regional market bubbles are converging to create a perfect storm. Homeowners and potential buyers alike should brace for a market correction, as property values adjust to more sustainable levels. The next quarter is expected to bring continued challenges, with little relief in sight.