With mortgage rates soaring to 20-year highs and buyers facing the most affordable market in recent memory, alarm bells are sounding of an imminent home price crash.
But one expert says there’s no reason to panic just yet. Economist Fred Harrison, who accurately predicted the last two global real estate crashes, says property values will continue to rise until 2026, after which they will plummet.
Harrison pioneered the “18-year house price cycle theory,” which claims that a crash will only occur 18 years after the last crash began.
His hypothesis is based on a 1930s study of the Chicago business cycle, but has yet to be proven wrong.
In his 1983 book, The Power in the Land, Harrison accurately predicted the 1989 peak in real estate prices and the recession that followed.
18-Year House Price Cycle Theory Means Crash Expected in 2026 and Continues Through 2028
In 2005, he published Boombust: House Prices, Banking and the Depression of 2010, successfully predicting the 2007 house price peak and subsequent crash.
In his latest book, We Are Rent, he argues that prices will peak in 2026 before the recession that overshadows the events of 2008.
Harrison argues that the only thing that can disrupt this cycle is a world war. Even the pandemic that poured gasoline on the real estate market wasn’t enough to throw the trend off its current trajectory.
The UK author told DailyMail.com: “During the pandemic, we have seen a significant rise in house prices, as the government gave households a lot of money to keep the economy going, and most of that money ended up flowing into the housing market.
“Right now, house prices are falling slightly, and people say a crash is imminent.
Fred Harrison (pictured) pioneered the “18-year house price cycle theory,” which claims that a crash will only occur 18 years after the last crash began.
“Prices are rising, but not as rapidly as they used to.”
Harrison argues that the global housing market is “in sync” and that the UK and US will crash at the same time.
He expects this to begin in 2026 and end in 2028, 20 years after the last one.
Harrison said a “significant drop” in property prices was coming, but said he couldn’t guess an exact number.
He claims that the 18-year cycle can be traced back 300 years. This pattern begins with a crash that lasts about two years, followed by a “recovery” phase that lasts for six to seven years, during which prices slowly rise.
The price increase then lasts for nine years, punctuated by a “mid-cycle dip” for one to two years.
At this point a crash occurs and the cycle begins again.
Harrison can’t pinpoint why 18 is a magic number, but his most plausible explanation suggests that it depends on interest rates.
The record low interest rates of the past decade have sent home prices skyrocketing. But with the Fed’s policy rate currently set between 5.25% and 5.5%, the ripple effect on house prices will be delayed, Harrison explained.
He estimates that this cycle is similar to how long it takes a borrower to pay off the interest on a 5% loan. At this point the cycle begins again.
Homebuyers face the most affordable market since 2006, according to Atlanta Federal Reserve figures
Homebuyers face the highest mortgage rates since 2002 as experts warn property market will snap on rising loan prices
His comments reveal that US housing affordability is worse than it was in 2006 as buyers face a perfect storm of high mortgage rates and rising home prices. served later.
Affordability is below levels seen during the peak of the housing bubble leading up to the 2008 financial crisis, according to data from the Atlanta Federal Reserve.
The Atlanta Fed uses house prices, mortgage rates and median income to calculate a monthly “affordability” score. The latest figures from June 2023 show the score plummeting to 69.5, nearly 40 points below where it was in June 2020.
The report also doesn’t take into account mortgage rates, which surged again in August. This month is likely to be the worst month for house prices in the century, according to estimates by the luck.