Home Prices May Fall Faster If Sellers Flood the Market

Home Prices May Fall Faster If Sellers Flood the Market

  • Home prices could fall at a faster pace, according to Pantheon Macroeconomics economist Kieran Clancy.
  • Previously reluctant home sellers could flood the market with inventory before prices decline further, he warned.
  • “We think prices need to drop by about 20% from their spring peaks in order to reach a sustainable level,” he said.

A decline in home prices could pick up speed if once-reluctant sellers start flooding the market with more supply in a rush to get ahead of further downside.

That’s according to Pantheon Macroeconomics senior US economist Kieran Clancy, who pointed out that while home sales and construction have adjusted sharply to collapsing demand, home prices have much further to fall.

A lack of supply has meant that home prices have only recently started ticking lower on a month-to-month basis, he said in a note, “but inventory is now creeping higher as many previously-reluctant sellers start to worry that their home will fetch a much lower price if they continue to wait to sell.”

The warning comes as the National Association of Realtors reported that sales of existing homes have fallen for nine straight months and are down 31.7% since January.

Aside from the depths of the COVID-19 pandemic, sales haven’t been this low since early 2012, Clancy said.

The fall coincides with this year’s surge in mortgage rates, which are near 20-year highs amid hawkish Federal Reserve tightening, though they have seen a slight decline this month.

So far, the inventory of existing homes has crept up to 3.2 months’ worth of sales in October from 1.5 months’ worth in January.

“That trickle of supply could quickly become a flood, though, increasing the speed — if not the ultimate depth — of the decline in home prices,” Clancy said. “We think prices need to drop by about 20% from their spring peaks in order to reach a sustainable level.”

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