US House Prices May Drop As Recent Gains, Debt Costs Hit Buyers: Siegel
The recent gains in the US housing market may be short-lived as increasing debt costs hit potential buyers, warns Wharton professor Jeremy Siegel. Siegel argues that rising interest rates will make homeownership more expensive and lead to a decrease in demand, ultimately leading to a drop in house prices.
The US housing market has seen rapid gains over the past year, with low interest rates and a surge in demand for homes fueling the growth. However, as the economy recovers and the Federal Reserve begins to taper its bond-buying program, interest rates are expected to rise, making it more expensive for homebuyers to finance their purchases.
As interest rates increase, homeownership becomes more expensive as mortgage payments increase. With higher mortgage payments and higher interest rates, many potential homebuyers may find themselves priced out of the market, leading to a decrease in demand for homes.
“The problem is, if interest rates go up, it makes housing that much more expensive,” Siegel told CNBC’s “Squawk Box.” “You can’t have house-price appreciation if people can’t afford to buy houses.”
Furthermore, Siegel warns that many homeowners may be burdened with high levels of debt, making it more difficult for them to afford higher mortgage payments. Rising debt costs combined with a decrease in demand could ultimately lead to a decline in house prices, Siegel believes.
While the fears of a housing market decline are valid, some analysts argue that the recent gains in the US housing market are a sign of a healthy and stable economy. Many homeowners have seen their home values increase significantly over the past year, leading to increased wealth and stability.
However, others argue that the housing market may be experiencing a bubble, with current demand for homes fueled by low interest rates and a surge in demand rather than fundamental economic factors.
Despite the differing opinions, it is clear that rising debt costs and interest rates will make homeownership more expensive in the coming years. Whether this leads to a decline in demand and a drop in house prices remains to be seen, but homeowners and potential homebuyers should keep a careful eye on the market as they make their next moves.