- A rise in housing inventory will accelerate a 15% to 20% plunge in home prices over the next year, according to Pantheon Macro.
- The firm said as existing home sales continue to fall, a rise in supply "will accelerate the speed" and "the depth of the decline."
- Higher monthly mortgage payments suggest "that a meaningful recovery in sales is still miles away," Pantheon said.
A 15% to 20% decline in home prices is likely as housing supply rises and consumers continue to feel the squeeze of higher monthly mortgage payments, Pantheon Macro said in a Wednesday note.
Existing home sales fell for the 10th straight month in November, down 7.7% to 4.09 million. That's below consensus estimates of 4.20 million, and represents a cumulative decline of 37% since January.
Pantheon said a collapse in housing demand has led to the continued decline in existing home sales, and that means the supply of homes for sale will likely rise.
"The scale of the collapse in demand over the past year is enough by itself to drive home prices lower from here, but a rise in supply will accelerate the speed of adjustment and, potentially, the depth of the decline," Pantheon economist Kieran Clancy said.
Driving the lack of consumer demand for homes is higher mortgage rates, which have doubled from about 3% at the start of the year to more than 6% today. Clancy estimates that monthly mortgage payments for a median-priced existing single family home are up 53% year-over-year, supporting Pantheon's view that "a meaningful recovery in sales is still miles away."
"House prices have much further to fall from here," he said, highlighting that a seasonally adjusted home price measure found that single family existing home prices dropped 1.4% in November.
"The bigger picture is that both the NAR and Realtor measures of existing home prices have been trending lower for several months now, but remain extremely elevated by past standards, both in level terms and as a ratio to disposable incomes," Clancy said.
"We look for a further 15% to 20% decline in prices over the next year, bringing the ratio of home prices to disposable incomes back in line with its long run average," he added.