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‘Poison’ Ivy Zelman—the analyst who predicted the 2008 housing bust—sees U.S. home prices falling in both 2023 and 2024. Here’s how much

September 6, 2022, 1:30 PM UTC
Photo illustration by Fortune; original photos by Getty Images

Poison Ivy.” That’s what housing bulls called analyst Ivy Zelman after she came out in 2005 and called the top of the housing bubble.

When Toll Brothers CEO Bob Toll tried to say the housing market had bottomed out in 2006, Zelman famously quipped back, “Which Kool-Aid are you drinking, because I want some.” Of course, Zelman’s housing-bust fears proved more than correct, and all those at the time who thought demographics would continue to propel the aughts’ home prices forward were proved dead wrong.

Fast-forward to 2022, and Zelman once again has housing bulls sweating.

Back in February, the founder of Zelman & Associates called the “peak” of the Pandemic Housing Boom. She was on the money again. Just weeks later, spiked mortgage rates pushed the U.S. housing market into a slowdown. This summer, as the housing correction intensified, Zelman provided a bearish assessment of U.S. home prices to clients of her boutique housing research firm.

“So right now we’re getting a backlash of the change in direction from free money to now the rise in [mortgage] rates and inflation. So the market is poised for a fairly significant [price] correction. And we’re already seeing signs of that over the last several months,” Zelman recently said on the Macro Hive Conversations podcast. “Inventories in certain markets—mostly on the West Coast, Southwest, and Mountain states—are rising at Mach speed.”

Zelman’s forecast model predicts that in 2023 U.S. home prices will fall 4%. Then in 2024 she predicts another 5% drop.

“As fast as [inventory levels] are rising and demand is plummeting, we could see pretty substantial [home] price corrections. But it’s going to vary by market,” Zelman says. “I don’t think this will just end quickly. This is going to be a very pressured market nationally in 2023 and 2024.”

Zelman’s outlook amounts to a 8.8% drop in U.S. home prices between 2022 and 2024. Historically speaking, that would make this one of the three sharpest home price drops ever recorded. The other two being those from the Great Depression and Great Recession.

If Zelman’s prediction holds true, Fortune would have to shift our branding from the Pandemic Housing Boom—a period that saw U.S. home prices soar 43% in just over three years—to the Pandemic Housing Bubble. That said, this forecasted drop is still more of a housing correction than a housing crash—something that the industry says requires a 20% price drop. At least it wouldn’t be on the level of the last crash: Peak to trough, U.S. home prices fell 27% between 2006 and 2012.

Not everyone agrees with Zelman’s bearish outlook, to be sure. Over the coming year, Zillow predicts that U.S. home prices will rise another 2.4%. Goldman Sachs predicts that U.S. home prices will rise 1.8% in 2023 and 3.5% in 2024. Meanwhile, firms like the Mortgage Bankers Association, CoreLogic, Fannie Mae, and Freddie Mac all still predict low single-digit home price jumps in 2023.

But Zelman also isn’t the only housing bear. Peak to trough, Moody’s Analytics expects U.S. home prices to decline from 0% to 5% nationally. If a recession hits, that Moody’s forecast moves to 5% to 10%, respectively. Falling home prices are also predicted by research firms including John Burns Real Estate Consulting, Zonda, Capital Economics, and Pantheon. Fitch Ratings thinks home prices could fall between 10% and 15% if the housing downturn takes a worse turn.

Mark Zandi, chief economist at Moody’s, tells Fortune that factors including “record low vacancy,” “very good underwriting,” and “plain vanilla lending” won’t be enough to prevent a single-digit drop in home prices. However, it will prevent the U.S. housing market from slipping into a full-blown “housing crash.” This time around, Zandi says, homeowners are in much better financial shape.

Keep in mind that when an economist or analyst says “U.S. home prices,” they don’t mean your house. Across the country, Zandi says, the results of the ongoing housing correction will vary. In frothy markets, like Austin and Boise, Zandi predicts home prices will fall between 5% and 10%. If a recession hits, Zandi expects 15% to 20% drops in the nation’s 187 significantly “overvalued” regional housing markets.

Want to stay updated on the housing correction? Follow me on Twitter at @NewsLambert.

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