An Economist's Latest Market Prediction May Mean You Should Wait To Buy A House

The housing market has been on a roller coaster ride over the past several years, and it has yet to slow down. In fact, one economist is suggesting that it could be worth waiting a little bit longer to make a new home purchase, per Fox Business. Ian Shepherdson is the founder and chief economist of Pantheon Macroeconomics, and the same economist who predicted the housing crash back in 2008. Now, Shepherdson is suggesting that home prices will continue to fall in the upcoming months. "We estimate that single-family home prices have fallen by 5.4% from their recent peak in May 2022, but they still need to fall by a further 15% or so before they return to their long-run average, compared to disposable incomes," he states.

This prediction comes as welcome news to potential buyers who have been unable to purchase a home in recent years. During the pandemic, mortgage rates dropped to historical lows, creating a demand for homes that was unprecedented. Unfortunately, this demand led to skyrocketing prices on homes, prompting bidding wars to generate offers that soared over the asking price. Although mortgage rates were low, the high demand for homes drove prices out of reach for many potential homebuyers.

Homebuyers faced a different challenge as the country began to emerge from the shutdown caused by the pandemic. By reversing course and dramatically increasing interest rates, the Federal Reserve attempted to apply the brakes as inflation began to rise. These higher rates caused mortgage rates to double, and home sales suddenly dropped. Even though home prices began to fall as more homes became available, many potential buyers were still squeezed out of the market because of the higher rates. Glenn Williams, CEO of Primerica, explained how households responded as everyday expenses increased, per CNBC. "When you see rising prices in staples like gas, rent, things you can't avoid... it comes down to tougher decisions around priorities," he told the outlet in July 2022. Many people put a new home purchase on hold.

However, Shepherdson believes that the number of homes for sale will continue to increase. As a result, this expanding supply will drive home prices down even further from their record highs. With these more manageable prices, the chance to buy a home will again become a possibility. In addition, the Fed has begun to relax its monetary policy, which will lead to lower mortgage rates. Decreasing interest rates also make buying a home more affordable. Shepherdson expects these trends to persist over the next few months, continually improving conditions for those homebuyers who have been biding their time as they wait to make a purchase.