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Jeremy Siegel on How Bad Paul Krugman Can Be

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  • The US housing market is collapsing as the Fed’s rapid rate hikes drive up mortgage costs.
  • Home sales have been falling for 8 months and prices have been falling. But economists say worse is to come.
  • Here’s what Jeremy Siegel, Paul Krugman, and 5 other top experts have to say about how painful things will get.

The alarm bell is sounding for American homeowners as rising mortgage rates frighten buyers, and the collapse in the U.S. housing market will only get worse, experts say.

Stress symptoms became obvious. Recent data showed existing home sales fell 24% in September – the eighth month-long decline marks the longest drop since 2007. Home construction has begun and the number of new home listings has dropped by 22%.

Behind the deteriorating housing market is the Federal Reserve, which has been aggressively raising interest rates to combat 40 years of high inflation. This drove mortgage rates to 20-year highs.

This has made home buying more expensive and has caused buyers to back off – mortgage applications are at their lowest level since 1997. Meanwhile, growing concerns about an impending economic recession dampened demand.

Here’s what the top 7 experts warn about what’s next.

Jeremy Siegel, Wharton professor of finance

“I expect house prices to fall by 10 to 15% and house prices to accelerate downward,” Siegel told CNBC in a recent interview.

In a separate interview with CNBC, he said: “In the next 12 months, we will experience the second largest housing price drop since the post-WWII era. This is a very, very important factor for wealth. [and] for equity in the housing market.”

Mark Zandi, chief economist at Moody’s Analytics

“Back off. Assuming that interest rates stay at their current 6.5% level and the economy is in recession, then national house prices will drop by almost 10% from top to bottom,” he said. said in a recent tweet. “Most of these declines will happen sooner or later. In a typical recession, house prices will drop by 20%.”

“The housing market is the most interest-rate-sensitive sector of the economy. It is at the forefront of the fallout from the Fed’s efforts to reduce inflation,” he said in a recent housing report.

“There will be a coast-to-coast downturn in the housing market. It will be brutal. No part of the market is immune.”

David Rosenberg, senior economist and chief of Rosenberg Research

“We have a huge housing bubble right now. Most of the household balance sheet is residential real estate and stocks,” Rosenberg said in a RealVision interview published this week.

The economist pointed to the Fed’s tightening efforts to reduce inflation from the recent 8-9% to its 2% target.

“They want the stock market to go down. They want house prices to go down. Why? Since there’s no chance of a snowball in hell, they’re now going to reach 2% holy grail consumer inflation without a period. asset deflation is 100% necessary.”

Paul Krugman, Nobel Prize-winning economist

The senior economist agrees that a serious decline is imminent – ​​but he hopes it will take some time before higher rates really hit home prices and demand.

“Fed rate hikes have indeed led to a sharp decline in building permit applications. But construction employment hasn’t even started to drop yet, probably because many workers are busy finishing homes that started when rates were lower.” One last piece of comment.

“And there are still months to the broader economic effects of the impending housing collapse,” he said.

Pantheon Chief Macroeconomics Economist Ian Shepherdson

Shepherdson believes that the sharp decline in home sales has yet to bottom out and that even buyers moving towards cheaper homes will face larger mortgage payments.

“We expect a 15% to 20% drop over the next year to restore the pre-COVID price-to-income ratio,” the strategist wrote in a note last week. Said.

“In short, housing is in free fall. So far, most of the hit has been in sales volumes, but now prices are also falling and they have a long way to go.”

Don Peebles, real estate developer and Peebles Corp. CEO

“I think the housing market is on the path to recession. We’re going to see price drops — price drops are already starting to happen,” Peebles told Fox News last week.

“I look at it as if there was this freight train that was out of control, speeding up, accelerating at low interest rates, and no one looked at slowing it down or braking it. Now all of a sudden it will come. It crashed into the station,” he said.

Chen Zhao, economics research leader at real estate brokerage Redfin

“The housing market will only get worse before it gets better,” Chao said last week, alongside a report that found a record 22% drop in prices of homes for sale in September.

“While inflation is still rampant, the Federal Reserve will likely continue to raise interest rates. That means we won’t see a decline until mid-2023, with high mortgage rates being the primary killer of housing demand.”