As mortgage rates soar to a two-decade high and buyers face the worst market in recent memory, alarm bells are ringing about a looming home price crash.
But one expert insists there’s no need to panic — not yet. Economist Fred Harrison, who accurately predicted the last two global housing crashes, thinks property values will continue to rise until 2026 — before it plummets.
Harrison pioneered the “18-year house price cycle theory,” which states that a crash does not occur until 18 years after the last crash began.
His hypothesis, based on research into business cycles in Chicago in the 1930s, has yet to prove him wrong.
In his 1983 book The Power in the Land, Harrison correctly predicted that house prices would peak in 1989, as would the recession that followed.
The 18-year house price cycle theory says a crash is expected in 2026 and will last through 2028
In 2005, he published Boom Bust: House Prices, Banking and the Depression of 2010, in which he successfully predicted the 2007 peak in house prices and the ensuing crash.
In his most recent book, We Are Rent, he claims that prices will peak in 2026 before a recession that will eclipse the events of 2008.
Harrison claims that the only thing that can break the cycle is a world war. Even the pandemic that fueled the real estate market wasn’t enough to derail the trend from its current course.
The British author told : “During the pandemic we saw this huge spike in house prices.” That was because the government was giving large sums of money to households to keep the economy afloat – and most of that money ended up in the real estate market.
“Now we’re seeing a slight drop in home prices and people are saying a crash is imminent.” But looking at the long-term trend, what we’re seeing right now is just a correction.
Fred Harrison, pictured, is a pioneer of the “18-year house price cycle theory,” which states that a crash does not occur until 18 years after the last crash began
“Prices are going up, just not as fast as before.”
Harrison insists the global housing market is “in sync” and that the UK and US are crashing at the same time.
He expects this to start in 2026 and end in 2028 – 20 years after the last one.
Harrison says a “significant fall” in house prices is imminent – but he can’t speculate on exact numbers.
He insists the 18-year cycle can be traced back 300 years. The pattern begins with a crash that lasts about two years before entering a “recovery” phase that lasts six or seven years and leads to a moderate price increase.
After that, there is nine years of sustained price increases, interrupted for a year or two by a “mid-cycle pullback”.
At this point, a crash occurs and the cycle begins again.
Harrison can’t say exactly why 18 is the magic number, but his most plausible explanation suggests that it’s driven by interest rates.
Record-low interest rates over the past decade have sent real estate prices skyrocketing. However, with the Fed interest rate now between 5.25 and 5.5 percent, there will be a delayed knock-on effect on house prices, Harrison said.
He estimates the cycle is as long as it takes for a borrower to pay back interest on a 5 percent loan. At this point the cycle begins again.
According to the Atlanta Federal Reserve, homebuyers are facing the least affordable market since 2006
Homebuyers are facing the highest mortgage rates since 2002 as experts warn that higher credit is stalling the housing market
His comments came after it was revealed that US housing affordability is now worse than it was in 2006 as buyers face a storm of high mortgage rates and soaring house prices.
Figures from the Atlanta Federal Reserve show that affordability has fallen below levels seen during the peak of the housing bubble leading up to the 2008 financial crisis.
The Atlanta Fed uses home prices, mortgage rates, and median income to calculate an “affordability” score each month. The latest figures from June 2023 show that the reading has fallen to 69.5 – almost 40 points below the June 2020 reading.
The report also doesn’t take into account mortgage rates, which spiked again in August. This means this month is likely to be the worst month of the century for housing affordability, according to Fortune estimates.