Should Housing Fear a Price Correction?

Diana Olick  |   August 1, 2017

Existing-home prices have jumped 6.5 percent from a year ago to a record high of $263,800 in June, according to the National Association of REALTORS®. It marks the 64th consecutive month for year-over-year price increases. The escalating prices are causing some to fear a price correction could be on the horizon. However, new research from JPMorgan finds that the risk of a dramatic decline in U.S. home prices is very low. JPMorgan culled historical data from 14 developed countries dating from the 1950s. Sharp price corrections are rare, even following a large run-up in prices, according to the report, “Quantifying Housing Correction Risk in Canada and the U.S.” “The data show that sustained increases in real house prices have been the norm rather than the exception in the post–World War II era, as rising populations and incomes have pushed up land prices,” says Jesse Edgerton, U.S. analyst from JPMorgan’s economic and policy research team. “Of course, there have been occasional large price declines over multiyear periods, as we saw starting in 2006 in the U.S. But such declines have not been common, even after periods of rising prices.” The study put the odds of a 20 percent decline in real prices within the next five years at about 10 percent in the U.S. and at about 20 percent in Canada.

Source: CNBC