U.S. Housing Market Is in a 'Meltdown': Economist

A top economist has warned that the U.S. housing market is currently in a "meltdown" that will continue to see a sharp drop in sales.

Ian Shepherdson, the founder and chief economist of British firm Pantheon Macroeconomics, told Forbes that homebuilder confidence, which is at a two-year low, still has "further to fall."

"Pretty soon, anyone who has bought a home in recent months will be sitting on a loss," he told the business magazine.

A new report released on Monday by the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index found that builder confidence in the housing market saw its seventh-consecutive monthly decline in June, falling 12 points in its second-biggest single-month drop in history.

"Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home," association chairman Jerry Konter said in a statement.

In the release, NAHB Chief Economist Robert Dietz said the challenge of affordability has priced out a significant portion of home purchasers from the market and warned that supply-side issues need to be addressed in order to tackle the issue of affordable housing.

Dietz isn't alone in his view. Moody's Analytics Chief Economist Mark Zandi also recently told Newsweek, "High mortgage rates are combining with high house prices, and affordability is being crushed. So, first-time homebuyers are getting locked out of the market."

Even before the release of Monday's report, some experts had cautioned that the slowing increase in construction jobs—as indicated by the jobs report from earlier this month—is a sign that housing affordability would reach a significant low in the U.S.

According to the NAHB, the only drop in confidence worse than this month was in April 2020 when the pandemic was sweeping the nation for the first time.

While the housing market seemed to boom as COVID moved into the rearview mirror—and as interest rates collapsed—the latest report signals the reversal felt by the Fed's rate hikes.

Last month, Federal Reserve Chairman Jerome Powell said that homebuyers would "need a bit of reset" before supply and demand were to match up again.

"The supply of finished homes, the inventory of finished homes that are for sale, is incredibly low," Powell said at a June 16 press conference. "Historically low. So it's still a very tight market. So prices may keep going up for a while even in a world where rates are up."

"We need to get back to a place where supply and demand are back together. And where inflation is down low again and mortgage rates are low again," Powell explained as he discussed the biggest interest rate hike approved by the Fed in nearly 30 years.

"So this will be a process whereby ideally we do our work in a way that the housing market settles in a new place and housing availability and credit availability are at appropriate levels."