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US home prices made lofty gains over the pandemic—a bigger run up than the one seen before the Great Recession. It’s going to be difficult to not see a significant chunk of those gains given back to the market, warned the Dallas Fed. Researchers from the US Federal Reserve branch warn severe recession is still possible. They need to tread carefully, since falling home prices can set off a negative feedback loop for the economy.

US Real Estate Prices Present A Risk To Price Stability & Employment

The US residential real estate market has been out of control, and is finally slowing down. Home prices increased 94.5% from Q1 2013 to Q2 2022, still a 60.8% increase after adjusting for inflation. “The magnitude of the increase is even larger than that of the preceding housing boom, from first quarter 1998 to second quarter 2007,” said Fed researcher Enrique Martínez-García.  

He warns falling home prices pose a significant threat to price stability and employment. Helping to drive inflation is a 16% increase for rents in Q2 2022, which only slowed to 12.2% in Q3. He attributes this to the surge in home prices, trickling down through landlords.