June 30, 2018, 11:41 a.m. EDT

We’re probably at peak housing. Here’s what that means.

A decade after the housing crisis, sales may have reached an unimpressive top

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By Andrea Riquier

In May, sales of previously-owned homes slumped, the second month in a row of declining sales. The National Association of Realtors, which tracks those sales, pointed to the same culprit it’s blamed for the past few years: not enough supply of homes to buy.

Shortly after the Realtors released their data, Regions Chief Economist Richard Moody wrote this in a research note: “Given that we see little reason to expect meaningful relief on the inventory front over coming quarters, we think it reasonable to conclude that we have passed the cyclical peak for existing home sales.”

Ten years after the financial crisis, the notion of a housing “peak” – which would naturally be followed by a downturn – seems downright spooky. The trauma of the last correction is still with us: more than 1.1 million Americans are still underwater, according to Black Knight , many foreclosures are still wending their way through the system, and ultra-tight lending standards put in place when the pendulum swung hard after the correction continue to lock many Americans out of the market.

But under normal circumstances, a correction in housing, like in any market, is normal, foreseeable – and possibly, though not certainly – upon us.

(It’s also worth noting that many voices have spent the last several years, seemingly ever since the last bubble burst, squawking about a new bubble. And it’s true that prices in many metros keep pushing higher and higher, defying the laws of logical market dynamics. But that’s been driven by outsize demand and lean supply that can’t keep up, not speculation.)

Also read: Bubble-era home buyers jumped at rising prices; today, they’re turned off

For the handful of economists calling the present moment a cycle top, it simply means that from here on, sales will stop growing, and possibly even decline, as will home prices.

Here’s how Nationwide Chief Economist David Berson put it in May, in response to the Realtors’ April sales figures: “We project that existing home sales will edge up by around 1% in 2018 to around 5.56 million units, which would be the strongest pace of sales since 2006. We expect that this will be the high-water mark for sales in this cycle.”

There’s widespread agreement among housing-watchers that the biggest problem facing the market is the supply-demand imbalance referenced in the May existing-home sales data.

Related story : Why aren’t there enough houses to buy?

Where analysts disagree is on what impact that will have. Moody and another economist, Ian Shepherdson of Pantheon Macro, believe that if supply remains stifled, it will continue to push home prices higher and higher. Add that to rising mortgage rates, and at some point demand will wane.

“You can withstand some further increase in mortgage rates, but at some point, eventually you hit a tipping point on mortgage rates where it does erode affordability,” Moody told MarketWatch.

Read : Housing’s big question — what will happen when buyers think 4% rates are ‘crazy’

But Sam Khater, chief economist for mortgage finance provider Freddie Mac, thinks there’s still room to run. Khater thinks existing-home sales have “hit the speed limit,” and recognizes that rising rates will at some point price many people out of the market.

Still, he said, “Total sales should continue to go up.”

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