The stock market is crashing. Inflation is high. Home prices are tumbling amid rising interest rates. An economist has warned that home prices could fall as much as 20% by mid-2023. All of these signs point us towards a recession.

Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said in an analyst note published this week that home prices have already declined 5% from their May peak. His projections show that seasonally adjusted existing home sales slid 0.7% in August, the third monthly decline.

“The plunging trend in sales has further to go, and prices are falling,” Shepherdson wrote in the note. Painfully high inflation and rising borrowing costs have proven to be a lethal combination for the housing market, forcing potential buyers to pull back on spending. Many experts – including Shepherdson – agree the housing market is now experiencing a recession. “The very low level of inventory means that a headlong collapse in prices is unlikely, but we still expect a total decline of up to 20% by the middle of next year,” Shepherdson said.

The Federal Reserve is tightening policy at the fastest pace in three decades as it tries to crush runaway inflation. Policymakers have voted to approve five consecutive interest rate increases this year, including three consecutive 75-basis-point hikes in June, July and September. At the conclusion of their latest meeting this week, Chairman Jerome Powell signaled that another 125 basis points of rate increases is on the table this year.

The rate hikes have driven the average rate for a 30-year fixed mortgage rate above 6%, according to Freddie Mac, the highest since the 2008 recession.

With mortgage rates rising, demand for new homes is rapidly drying up, prompting home prices to fall.

The National Association of Realtors said in a new report on Wednesday that home prices declined slightly from the median high of $413,800 recorded in June to $389,500. However, home prices are still up 7.7% from the same time a year ago, the 126th consecutive month of year-over-year home price increases. That is the longest-running streak on record.

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