As mortgage rates soar to a 20-year high and buyers face the least affordable market in recent history, alarm bells are ringing about an impending house price crash.
But one expert insists there is no need to panic just yet. Economist Fred Harrison, who has accurately predicted the last two global real estate crashes, claims that real estate will continue to rise in value until 2026 – before falling in value.
Harrison is a pioneer of the “18-year house price cycle theory,” which claims that a crash does not happen until 18 years after the onset of the last crash.
His hypothesis, based on 1930s research on Chicago business cycles, has yet to prove him wrong.
In his book The Power in the Land, published in 1983, Harrison correctly predicted that real estate prices would peak in 1989 and the recession that followed.
The 18-year house price cycle theory means a crash is expected in 2026 and will last until 2028
In 2005, he published Boom Bust: House Price, Banking and the Depression of 2010, in which he successfully predicted the house price spike in 2007 and the subsequent crash.
His most recent book We Are Rent claims that prices will peak in 2026 before a recession that will overshadow the events of 2008.
Harrison claims the only thing that can disrupt the cycle is a world war. Even the pandemic – which sent oil into the real estate market – was not enough to deflect the trend from its current course.
The British author told DailyMail.com: “During the pandemic, we have seen these huge house price increases. That was because the government gave households large sums of money to keep the economy going – and most of this money ended up in the housing market.
“Now we see house prices falling slightly and people are saying a crash is coming. But really, if you look at the long-term trend, what we’re seeing now is just a correction.
Fred Harrison, pictured, is a pioneer of the “18-year house price cycle theory,” which claims that a crash doesn’t happen until 18 years after the latter starts
“Prices are going up, just not as fast as before.”
Harrison emphasizes that the global housing market is “synchronised” and that Britain and the US will crash at the same time.
He expects this to start in 2026 and end in 2028 – 20 years after the previous one.
Harrison says a ‘substantial drop’ in property prices is imminent – although he says he can’t speculate on exact figures.
He emphasizes that the 18-year cycle goes back 300 years. The pattern begins with a crash that lasts about two years before entering a ‘recovery phase’ that lasts six to seven years, during which prices experience modest growth.
Thereafter, there is sustained price growth for nine years, interrupted for a year or two by a mid-cycle dip.
At this point a crash ensues and the cycle begins again.
Harrison can’t pinpoint exactly why 18 is the magic number, but his most plausible explanation suggests it’s determined by interest rates.
The record low interest rates of the past ten years have pushed house prices up. However, with the Fed’s interest rate now hovering between 5.25 and 5.5 percent, this will have a delayed knock-on effect on home prices, Harrison explains.
He estimates that the cycle is as long as it takes a borrower to pay off the interest on a 5 percent loan. At this point the cycle begins again.
Since 2006, homebuyers have faced the least affordable market, according to data from the Atlanta Federal Reserve
Homebuyers face the highest mortgage rates since 2002 as experts warn higher lending will bring the real estate market to an abrupt halt
His comments come after it was revealed that housing affordability in the US is now worse than it was in 2006 as buyers face a perfect storm of high mortgage rates and higher home prices.
Data from the Atlanta Federal Reserve shows that affordability has fallen below the peak of the housing bubble leading up to the 2008 financial crisis.
The Atlanta Fed uses home prices, mortgage rates and median incomes to calculate an “affordability” score each month. The latest figures, from June 2023, show that the score has dropped to 69.5 – almost 40 points lower than in June 2020.
The report also does not take into account mortgage rates, which rose again in August. It means this month is likely to be the worst housing affordability month of the century, according to estimates from Fortune.