- Property prices in the US and around the world will fall another 10%, Kenneth Rogoff told Bloomberg.
- The Harvard professor said central banks’ interest rate hikes are yet to have a full impact on the economy.
- “There’s still a lot of downward adjustment in housing markets globally, not just in the United States,” he said.
Home prices will drop by another 10% in the US and across the world in the next few years as interest rates stay high, Kenneth Rogoff has warned.
The Harvard University economist shared his gloomy outlook during a Bloomberg interview on Tuesday at the World Economic Forum in Davos.
He said the impact of aggressive rate-hiking campaigns by central banks like the US Federal Reserve take time to feed into the economy, and that means more pain could lie ahead for the housing market.
“Housing famously moves — prices, especially down — move more slowly. People just sit on their house, they don’t sell their house,” Rogoff said.
“If — as I think — interest rates are going to stay high for some time to come, I think there’s still a lot of downward adjustment in the market.”
Asked what kind of range he expects, Rogoff said: “Certainly, another 10%, I would think, over a couple of years still.”
The Fed, like its global counterparts, raised interest rates throughout much of 2022 to rein in inflation. It aggressively hiked rates from near-zero levels to a range between 4.25% to 4.50%.
As a result, the US housing market has cooled sharply as those hikes helped drive a rise in mortgage rates. The 30-year rate is now about double what it was a year ago and is hovering near multidecade highs.
That makes it more expensive for homebuyers to buy a property, which has sparked an affordability crisis in the US, with experts predicting the worst is yet to come.
“Equities and housing move in sync with interest rates — but equities move much faster,” Rogoff said.
The former chief economist of the International Monetary Fund believes inflation will eventually drop to around 2.5%, not the 2% target Fed officials are hoping for. But he expects them to stay elevated for some time yet.
“Interest rates aren’t going to come down to the same level as they were before,” Rogoff said. “I wouldn’t be surprised to have a Fed funds rate of 3.5% for quite a while from now.”