U.S. home prices could fall as much as 20% next year

Home prices have plunged during the second half of 2022 with demand for residential real estate cooling off in a number cities across the U.S. Prices could continue to fall by as much as 20% next year as mortgage rates climb and the housing market normalizes in wake of the pandemic, according to a noted Wall Street economist.

Ian Shepherdson, chief economist with Pantheon Macroeconomics, said in a report last week that tumbling demand for homes amid sharply rising mortgage rates is weighing heavily on housing prices. 

"[W]e expect home sales to keep falling until early next year. By that point, sales will have fallen to the incompressible minimum level, where the only people moving home are those with no choice due to job or family circumstances," he said. "Discretionary buyers are disappearing rapidly in the face of the near-400 [basis point] increase in rates over the past year."