Severe US housing downturn 'possible', prices could drop 15%: Fitch

The likelihood of a “serious downturn” in the US housing market is rising, according to new indications from credit rating agency Fitch. ...


The likelihood of a “serious downturn” in the US housing market is rising, according to new indications from credit rating agency Fitch.

Fitch’s Likely Projections suggest that U.S. home prices could fall 10-15% in the event of a major housing crisis, alongside a decline of around 30% or more in housing activity over the next few years. .

“The likelihood of a severe US housing downturn has increased; however, our rating scenario calls for a more moderate pullback that includes a mid-single-digit decline in real estate activity in 2023 and further pressure in 2024,” Fitch analysts said in a statement tuesday.

The agency noted that a severe downtown was “possible, but not yet likely”, with a minor slowdown remaining the most likely outcome for the housing market. Fitch said it recently affirmed a “stable outlook” for US homebuilders.

Fitch pointed to several factors as “key indicators” of the health of the housing market, including US GDP growth, unemployment, consumer confidence and housing affordability.

House for sale
Mortgage rates have almost doubled this year.
Getty Images/iStockphoto

The company warned that it could “reduce our rating case projections if trends weaken beyond our expectations.”

Additionally, Fitch said its “crisis case” for the housing market in the event of a sharp economic downturn suggested that homebuilder shipments would drop about 20% in 2023 and 10% in 2024. In this case , average U.S. home sale prices could “fall to mid- to high-single digits each year.”

“Builders that don’t build up sufficient cash reserves in a downturn would likely need to issue debt to replenish inventory during a housing recovery, stretching credit metrics,” the analysts added.

US GDP, the broadest measure of economic activity, recently decreased for the second consecutive quarter. Economists widely regard two consecutive quarters of falling GDP as an indicator of a recession.

Warnings about a potential housing downturn have increased in recent months as the Federal Reserve has tightened monetary policy. Mortgage rates have almost doubled since January, causing an affordability crisis for potential buyers.

Earlier this week, the National Association of Home Builders declared a “housing recession” after builder confidence fell for the eighth consecutive month.

“The Federal Reserve’s monetary policy tightening and persistently high construction costs have caused a housing slump,” said NAHB chief economist Robert Dietz.

In July, Ian Shepherdson, chief economist at Pantheon Macroeconomics, warned in a note to clients that house prices will probably fall “quite substantially” due to “cratered” demand among cash-strapped buyers.

At the time, Shepherdson said prices were likely “15% to 20% overvalued” relative to income.

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Newsrust - US Top News: Severe US housing downturn 'possible', prices could drop 15%: Fitch
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