House Prices Poised to Fall From Record Highs, but by How Much?

Rather than stalling amid historically low inventory levels and solid lending over the last decade, nominal prices are declining nationally, and according to Bill McBride in the CalculatedRisk Newsletter, prices could fall by over 10% in the year ahead. Without steady income growth, house prices will need to fall in order for a housing affordability crisis to be resolved, and as interest rates continue to surge, experts predict significant double-digit regional price declines in the not-so-distant future.

House prices are expected to decline around 25% in real terms over the next 5 to 7 years, and nominal prices could follow the same trajectory as peak inflation cools homebuyer demand.

Since national house prices increased very quickly during the pandemic - up over 40% - it seems likely that some of the usual “stickiness” will not apply. I think the most likely scenario now is nominal house prices declining 10% or more from the peak, and real house prices declining 25% or so over the next 5 to 7 years.

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