An economist is predicting home prices could decline much more than anticipated as the housing bubble begins to pop.
A 15 percent drop in home prices for next year is “very conservative,” KPMG chief economist Diane Swonk told Fortune. Swonk’s forecast comes as the market’s correction from the pandemic-era frenzy has come into focus in recent months.
“Once you start the process of prices falling nationally, there is a self-fulfilling momentum to it because no one wants to catch a falling knife,” Swonk told the outlet.
The economist said the market was a “pandemic-induced bubble,” inflated by those relocating as they work from home. Rapidly spiking mortgage rates are contributing to the pop, sidelining would-be buyers and persuading would-be sellers to keep their lower locked rate.
Price growth hit a record slowdown in August, according to the Case-Shiller Index. Data showed a drop in year-over-year price growth for the second straight month and a 13 percent annual rise, compared to July’s 15.6 percent annual gain. The 2.6 percentage point decline was the sharpest month-to-month fall in the index’s 35-year history.
The Federal Reserve’s plans to combat inflation with general interest rate hikes have sent mortgage rates to historic highs and flattened demand.
While a national price drop of more than 15 percent would be one of the biggest declines in history.