1、 Allianz Research US housing market:The first victim of the Fed Real property prices set to decline by-15%in the next 12 months,pushing the US economy into recession 22 September 2022EXECUTIVE SUMMARY The US housing market is adjusting to the new reality of higher-for-longer interest rates.Interest

2、rates are rising rapidly the Fed delivered a third consecutive 75bp hike during the September FOMC meeting and unlikely to decrease much in 2023 as the FOMC will be keen to restore its inflation-fighting credibility.In this context,the pass-through from higher Fed Funds rates to mortgage rates today

3、 is the strongest since the early 1980s.As a result,housing and mortgage markets have entered into a rapid correction phase.Mortgage applications have slumped to their lowest level in more than 20 years,while the stock of unsold homes is reaching historical highs,signs that housing demand is droppin

4、g rapidly.Meanwhile,a rapid slowdown in deposits and monetary indicators suggests that financial institutions could start pulling back mortgage lending availability soon.Property prices have held up thus far but are the next domino to fall:We expect real property prices to slump-15%within the next 1

5、2 months,which will push the US economy into a recession in 2023(-0.7%).However,strong aggregate household balance sheets should soften the blow.Unlike in the mid-2000s,household balance sheets are in better shape overall debt is much lower relative to incomes,the average credit quality of that debt

6、 is higher(sub-prime mortgages have declined),net worth is very high(reducing the likelihood that large swaths of households slip into negative equity)and cash balances remain significantly above pre-pandemic levels.The US housing market has entered into a sharp correction.Mortgage rates are hitting