Top economist says it will be years before housing market unfreezes

The rise in mortgage rates made the housing market “depressed” and “more unaffordable,” Gary Shilling, an economist best known for correctly forecasting the 2008 housing crash, said in a recent Retirement Lifestyle Advocates podcast. Not only could new homeowners not afford to break into the housing market, but fewer existing homeowners wanted to let go of the 3% mortgage rates they had—a phenomenon known as the lock-in effect.

“They don’t want to sell their houses and move to another house because they’d have to take out a mortgage at more than twice the yield on their current mortgage,” Shilling said. “You have this really odd situation of high mortgage rate, yet shortage of housing inventories. It’s an anomaly.”

Before the 2008 crash, Shilling—considered a housing-market prophet—warned that subprime loans were probably the “greatest financial problem” for the U.S. economy, and in January 2006 wrote an article titled “The Housing Bubble Will Probably Burst.” He now serves as president of financial consultancy A. Gary Shilling & Co. Inc. and as editor of A. Gary Shilling’s Insight, a monthly newsletter that promises “exhaustive investigations of key economic indicators” and how they affect investment portfolios. 

While mortgage rates have slightly eased from their October 2023 peak, they’re still hovering around 7%—and there’s no telling when they’ll drop by a meaningful amount. Other housing experts and economists have predicted mortgage rates will stay in the 5% to 6% range for the next couple of years, but meaningful change isn’t “going to…