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Home prices could plunge 20% amid risks of 'severe' correction, Dallas Fed says
Housing market ‘another sign’ economy is slowing down: Chris Zaccarelli
Independent Advisor Alliance CIO Chris Zaccarelli analyzes the market as it awaits September inflation data.
U.S. home prices could tumble as much as 20% as the highest mortgage rates in two decades threaten to trigger a "severe" price correction, according to research from the Federal Reserve Bank of Dallas.
Fed policymakers need to strike a delicate balance as they try to deflate the housing bubble without bursting it, Dallas Fed economist Enrique Martínez-García wrote in the analysis published this week.
"In the current environment, when housing demand is showing signs of softening, monetary policy needs to carefully thread the needle of bringing inflation down without setting off a downward house-price spiral — a significant housing selloff — that could aggravate an economic downturn," he said.
During the COVID-19 pandemic, home prices soared at a pace not seen since the 1970s with mortgage rates near a record low, Martinez-Garcia said. Homebuyers – flush with stimulus cash and eager for more space during the pandemic – flocked to the suburbs; demand was so strong, and inventory so low, at the height of the market, that some buyers waived home inspections and appraisals, or paid hundreds of thousands over asking price. That "fear of missing out" mentality helped to fuel a housing "bubble," he said.