Home price declines will accelerate even as sales bottom out early next year, economist says

• The decline in home prices will accelerate even as sales are headed for a bottom early next year, according to Pantheon Macroeconomics.
• The assessment came as the NAHB index fell for the 11th straight month to hit the lowest since April 2020.
• “The good news for homebuilders is that a floor is coming,” Pantheon economist Kieran Clancy said in a note.

The decline in home prices will pick up speed even as sales are headed for a bottom early next year, according to a note from Pantheon Macroeconomics.

The assessment came as the latest National Association of Home Builders index of homebuilder activity and sentiment plunged to 33 in November from 38 in the prior month, marking the 11th consecutive decline and lowest level since April 2020.

While home prices recently started to drop on a month-to-month basis, mortgage rates are down as expectations for a less hawkish Federal Reserve have sent the 10-year Treasury yield sharply lower over the past week. The Mortgage Bankers Association said Wednesday the 30-year fixed rate slipped to 6.9% from 7.14%.

“The good news for homebuilders is that a floor is coming,” Pantheon economist Kieran Clancy said in a note. “Mortgage rates have peaked, suggesting that demand will flatten in the months ahead, albeit at an extremely depressed level. Accordingly, we expect housing starts and sales to bottom out early next year, even as the decline in home prices accelerates.”

Separately, an economist at the Dallas Federal Reserve said rising mortgage rates could lead to US home prices falling by between 15% and 20%.

“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,” economist Enrique Martínez-García said in the study, published Tuesday.

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