U.S. housing prices could plunge 20%, Dallas Fed warns

America's home prices could plunge as much as 20% due to the sharp rise in mortgage rates in 2022, which are drastically increasing home ownership costs and "boost the odds of a severe house price correction," according to research from the Federal Reserve Bank of Dallas.

To be sure, the potential for the nation's homes to shed as much as one-fifth of their value represents a "pessimistic scenario," Dallas Fed economist Enrique Martinez-García noted in a report on Tuesday. But other economists have signaled similar fears, with Pantheon Macroeconomics Chief Economist Ian Shepherdson earlier this year predicting a similar slump in home prices.

The pandemic created an unusual elixir for the real estate market, with record-low mortgage rates and work-from-home orders whipping up a surge in demand for home ownership. At the height of the market, some buyers even waived traditional contingencies such as inspections and offered tens of thousands of dollars over asking prices in order to win their bids — a "fear of missing out" mentality that fed into a "bubble," Martínez-García said.

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