Chief Economist at Redfin Daryl Fairweather argued that a recession could coincide with a decline in home prices as prices continue to climb even while data reveals that sales have slowed.
Fairweather provided the insight shortly after the National Association of Realtors (NAR) said that sales of existing homes in the U.S. slowed for the fourth straight month amid rising mortgage rates and record-high prices.
Existing home sales fell 3.4% in May from the month before to a seasonally adjusted annual rate of 5.41 million, according to the association, which noted that sales dropped 8.6% from the same time last year.
Even as home sales slowed, prices kept climbing last month, according to NAR, which noted that the national median home price jumped 14.8% in May from the year before to $407,600, an all-time high based on data going back 23 years.
Speaking on “Varney & Co.” on Tuesday, Fairweather stressed that home prices could fall if “the economy is hurt so bad” that buyers can’t afford what is available.
“I think out of everything in the economy, the housing market is still in a pretty solid space because of how well-financed people were going into this inflation and they had plenty of equity,” Fairweather said.
“We’re not going to see distressed sales, but we could see a decline in prices if the economy is hurt so bad that buyers just can’t afford the high prices that sellers want.”
Fairweather also noted that “buyers are backing off of the housing market” with higher interest rates.
“They simply can’t afford the same budget they could afford last year,” she said, pointing out that “the median monthly mortgage payment is up nearly 50% from last year.”
“So buyers either have to restrict their budgets or drop out,” she continued.
Fairweather also noted that sellers don’t want to drop their price either and so they “are just going to sit tight,” especially since “they have plenty of home equity” and “record low mortgage rates from last year.”
“So we are going to have fewer listings, fewer buyers and that’s just going to mean a lot fewer sales, but still, high prices will stick around,” she said.
Fairweather stressed that “people just don’t feel as motivated to buy a home right now” given the high mortgage rates and inflation.
“And it’s not like you can get a fixer-upper and expect to get a deal because … the price of fixing up a home is going up as well,” she added.
Earlier this month it was revealed that inflation remained painfully high in May, with consumer prices hitting a new four-decade high that exacerbated a financial strain for millions of Americans.
The Labor Department said that the consumer price index, a broad measure of the price for everyday goods, including gasoline, groceries and rents, rose 8.6% in May from a year ago. Prices jumped 1% in the one-month period from April. Those figures were both higher than the 8.3% headline figure and 0.7% monthly gain forecast by Refinitiv economists.
Shelter costs – which account for roughly one-third of the CPI – accelerated in May, climbing 0.6%. It marked the fastest one-month gain since 2004. On an annual basis, shelter costs have climbed 5.5%, the fastest since February 1991.