An ongoing plunge in US home prices represents an opportunity for patient house shoppers, famed Yale University economist Robert Shiller stated this week.
Home price declines are expected to accelerate this year as the Federal Reserve’s interest rate hikes weigh on the US economy and force sellers to sweeten the deal for buyers.
As a result, prospective home buyers willing to postpone their plans by six months or so could secure a more affordable deal, according to Shiller, who co-developed the original methodology behind the closely watched S&P CoreLogic Case-Shiller national home price index.
“Home prices are very high by historical standards. I would extrapolate the downturn somewhat; it’s going to continue,” Shiller said during an appearance on CNBC.
“Maybe if you have a chance to delay your purchase, it might be a good time to do it. You might get it a little cheaper in another six months.”
Surging mortgage rates have further crimped affordability in the US housing market following a massive run-up in prices during the COVID-19 pandemic.
The average 30-year fixed mortgage rate was 6.42% through last week, according to Freddie Mac data.
The rate is up by 2% compared to the same week one year ago.
Sellers have begun slashing prices to entice cash-strapped buyers to re-enter the market.
US single-family home prices fell for the seventh straight month in January, declining by 0.2% compared to December, according to the latest S&P CoreLogic Case-Shiller national home price index released Tuesday.
Shiller signaled he expects the US housing market to remain under pressure in the months ahead.
“That’s the capitalist system with a central bank,” Shiller told CNBC.
“I think it works pretty well most of the time and I wouldn’t tinker too much with it. We have smart people on the Fed and the Treasury Secretary I admire, Janet Yellen. They may have to accept something of a recession.”
Shiller acknowledged there are other factors besides economic conditions that determine “the right time” for any buyer or seller to act, depending on their situation.
“Home purchase is such a family decision, I’d hate to overreact,” Shiller added.
“We do have a declining market at the moment, but there are costs to not selling at the right time, the convenient time, or you might lose a house that you liked to somebody else. I don’t think it’s an easy answer to that question.”
In February, overall US home prices posted a year-over-year decline for the first time since 2012, according to the National Association of Realtors.
The decline snapped a record streak of 131 consecutive months of gains.
The median sale price for previously-owned US homes dropped to $363,000 in February – a decrease of 0.2% compared to the same month one year earlier, when the median price was $363,000.
Some economists have predicted major declines ahead for the housing market this year.
Earlier this month, researchers at the Dallas Fed warned that prices would need a 19.5% correction “to bring the US in line with its fundamentals.”