A senior property economist warns home values will start to decline by the end of the year as soaring mortgage rates send buying activity off a cliff
In a June 20 note, the senior property economist at Capital Economics, an economic research firm, said that 30-year fixed mortgage rates had surged high enough to cause price declines in the months ahead. Rates are cutting into monthly budgets now more than they were during the mid-2000s housing bust, he said.
"We have previously argued that a mortgage rate of above 6% represents the threshold at which house price falls become likely," Pointon said."With rates recently rising above that level, we are therefore revising down our house price forecast." He continued:"At 6%, the median income household looking to buy the median-priced home today will have to put close to 25% of their income toward mortgage payments, higher than the previous record of 24% seen in the mid-2000s."
Pointon told Insider on Wednesday that he expects the first month-to-month decline to occur in November of this year, and that home prices will end up down 5% year-over-year in mid-2023. Previously, Pointon saw price growth slowing to 0%, but with thehiking interest rates more aggressively than many expected to cool 41-year-high inflation, he and his colleagues have revised upward their 10-year yield and 30-year mortgage rate forecasts. They now see mortgage rates topping out around 6.5%.
Given this upward revision with mortgage payments already heavily cutting into budgets, positive or even 0% price growth is unsustainable, Pointon said. fell 8.6% year-over-year to the lowest level since June 2020Below are graphs from Capital Economics showing the relationship between existing home sales growth and home price growth , as well as Pointon's forecasts .
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