The U.S. housing market is correcting at a lightning pace after years of steady growth throughout the pandemic, and housing experts worry that more rate hikes from the central bank could make a 2023 recession even worse. In order for the housing market to return to a fundamental-based ratio, a 19.5% price correction is necessary, Insider reports.
But as the Federal Reserve tacks on more rate hikes, a growing number of prospective buyers are unable to afford home purchases, even as price growth begins to slow. That falling demand could lead to an even more substantial correction in the year ahead.
The global housing market has become frothy since 2020 as a result of the pandemic boom, according to authors Lauren Black and Enrique Martínez-García, and there's still a risk of a deep housing slide despite signs of easing home-price growth.
"[I]f the observed price-to-rent ratio grows at an explosive rate relative to its fundamental-based ratio estimated with long-term interest rate and rent growth data, the bubble hypothesis merits attention," they said.
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