Economist who called 2008 housing crash predicts another 15% drop in home prices

The recent analyst note by a U.S. economist who predicted the 2008 housing crash has sparked heated debate among experts. The economist believes that home prices could plunge another 15% this year, and this has caused alarm among many in the industry. This prediction has been met with skepticism from some, but others believe it could be an accurate forecast of what’s to come in the housing market. It is important to understand the economic factors and implications of such a prediction in order to make informed decisions about investing in real estate.

In a recent analyst note, Ian Shepherdson – the founder and chief economist of Pantheon Macroeconomics – suggested that home price declines will accelerate further in 2023 as a result of low affordability and growing inventory.

“We estimate that single-family home prices have fallen by 5.4% from their recent peak in May 2022, but they still need to fall by a further 15% or so before they return to their long-run average, compared to disposable incomes,” he wrote in a recent note to clients.

Although consumer demand likely is bouncing back from a low point in the fall as mortgage rates fall from a record-high, Shepherdson – who predicted the mid-2000s housing bubble and subsequent recession – believes that prices have a ways to go before they hit bottom. 


With mortgage rates near a record low and the economy in flux due to the COVID-19 pandemic, homebuyers have been flocking to the market in droves. This has caused home prices to soar at a pace not seen since the 1970s, making it an ideal time for those looking to buy a new home. However, with this influx of buyers comes competition and buyers must be prepared with knowledge of their local market and an understanding of how to secure financing in order to get their dream home.


That frenzy came to a halt when the Federal Reserve embarked on the most aggressive interest-rate hike campaign since the 1980s as it tried to slow the economy and crush runaway inflation. Policymakers already lifted the benchmark federal funds rate seven consecutive times in 2022 and have indicated they plan to continue raising rates higher this year as they try to crush inflation that is still running abnormally high. The interest rate-sensitive housing market has borne the brunt of the tighter policy, with mortgage rates more than doubling over the course of the year. Home sales evaporated and prices began to decline from record highs. “Mortgage rates have fallen by 93bp since late October, and demand looks to be rebounding—modestly—after collapsing last year,” Shepherdson wrote. “To be clear, any rebound in sales from here will be small; monthly payments for a new buyer of an existing home have fallen, but were still up 54% year-over-year in December.” And although home prices are falling, they remain higher than they were one year ago: The median price of an existing home sold in December was $372,700, a 2% increase from the same time a year ago. This marks the 130th consecutive month of year-over-year home price increases, the longest-running streak on record, according to a separate report published last week by the National Association of Realtors.

Another aspect of Shepherdson’s argument is the supply side of the equation; he believes that home supply will increase going forward. Prices tend to fall when supply increases. 

“The increase in existing home supply, meanwhile, appears to have stalled in December, with inventory of single family homes unchanged at 3.4 months of current sales. But we remain confident that inventory will rise again before long, especially as the downward adjustment in prices accelerates,” he said.


After graduating with a business degree, Matt worked in retail, running his family business for 6 years. Realizing that he wanted a change of pace, Matt started working in real estate 3 years ago. His favorite part of his job is creating close bonds with both his buyers and sellers. Matt enjoys the dynamic Homeinc culture and looks forward to collaborating with his peers. When not at work, Matt enjoys playing soccer, working out, exploring the outdoors and spending time with his wife and family.

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