The Real Estate Market is Worse Shape According to Economist - Many Homeowners will have wished that the had SOLD their homes in 2022

The Federal Reserve's policy tightening is sending the U.S. housing market into a tailspin -- and policymakers have yet to fully grasp the scale of the problem, according to a leading economist. 

Ian Shepherdson, the chief economist at Pantheon Macroeconomics, offered a bearish outlook for homeowners after federal data showed sales of new single-family homes hit their lowest level in nearly seven years in July. 

Real Estate sales fell 12.6% to a seasonally adjusted annual rate of 511,000, well below consensus expectations.

Shepherdson wrote a letter to clients detailing that the housing market is in much worse shape than the Fed has been willing to admit and that the Fed is much more concerned about inflation than the real estate market. Right now the real estate market is collateral damage.

After booming in the course of the COVID-19 pandemic, the real estate market has cooled in current months because the Fed hikes have been trying to take control of inflation by increasing the Fed rate. The Fed’s attempt to slow down consumer spending has really started a downward trend in the real estate market. A real estate inventory is starting to increase and sales prices are starting to decrease in most parts of the nation.

Mortgage rates on Fannie Mae and Freddie Mac loans had increased significantly for fixed-rate mortgages since the beginning of the year before they fell slightly in the past 45 days. The recent drop in mortgage rates is being tied to the possible recession that the Fed is causing.

According to Shepherdson, new home sales have plunged below pre-pandemic level and the steepest declines in real estate sales could be behind us. But he also warned that the "Worst is yet to come" for real estate sales prices. "We expect sharp month-to-month declines in new home prices for the foreseeable future," he added. 

Fed Chair Jerome Powell

Fed Chair Jerome Powell acknowledged the swiftly changing real estate market following the July meeting. At the time, he recommended a slowdown would be advantageous for home buyers who were struggling to compete to buy homes.

“I’d say if you are a homebuyer, somebody, or a young person looking to buy a home, you need a bit of a reset,” Powell said. “We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again.”

Officials from the Fed meeting noted that the slowdown in the real estate market would continue because the real estate market is 15-20% overvalued. 

There will be lots of homeowners in 2023 who will be wishing that they took advantage of the high sales prices of 2022.

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