US home prices could sink as much as 15% in a market crash but a moderate downturn is still more likely, Fitch says

• The odds of a severe housing downturn have risen, and US home prices could sink as much as 15% in that scenario, said Fitch.
• But a moderate pullback is still the more likely outcome, the credit rating agency said.

The odds of a severe housing downturn have risen, and US home prices could sink as much as 15% in that scenario, according to a report from Fitch.

But the credit rating agency said a moderate slowdown is still the more likely outcome, predicting that housing activity will fall by mid-single digits in 2023 and low-single digits in 2024.

Fitch reaffirmed a stable outlook for US homebuilders, but estimated that a sharp deterioration in the market could result in housing activity falling 30% or more over multiple years with home prices down 10% to 15%.

Fitch listed consumer confidence, GDP growth, home prices and unemployment as key factors contributing to its projections.

Under its "stress case," where the economy slumps further and softens the housing market, Fitch sees homebuilder deliveries falling roughly 20% in 2023 and 10% in 2024. The report noted that in such a scenario, homebuilders would "likely need to issue debt to rebuild inventory positions in a housing recovery, which would stretch credit metrics."

US home prices have already declined steadily during the summer months, as inflation and ensuing interest rate hikes discourage buyers from taking the plunge on purchasing a new home.

Mortgage rates more than doubled in July from 2021 according to data from Freddie Mac, and demand could fall further as homes are significantly "overvalued."