What are the macroeconomic implications of a modest (5-10%) decline* in U.S. house prices?

I think context is important here or you might miss the point.

*5-10% isn't necessarily my forecast, but it's a number I've seen around First, whether or not a 5-10% decline in house prices would be modest or not is context specific. In a normal environment a 5-10% drop would probably be more than modest.

U.S. home purchase mortgage applications are down 40% from a year ago, off 50% from their seasonally adjusted 2021 peak. refinance activity is not 0, but it's the lowest it has been in a long long time

The U.S. housing market is at the beginning stages of the most significant contraction in activity since 2006.

It hasn't shown up in many data series yet, but mortgage applications are pointing to a large decline over summer.

Purchase apps down 40% from seasonally adjusted peak during COVID in spring of 2020, applications also fell 40% but came roaring back in short order

such a rebound is unlikely in the current environment

but neither is the very very slow recovery we saw in 2011

Back in 2009 the U.S. had an excess of 1.9 million vacant housing units. As of the fourth quarter of 2021 there was an undersupply of 1.8 million vacant units. I caculated the undersupply by comparing the current homeowner/renter vacancy rate (very low) to its historical average

then computed how many more vacant units you would need to add to get vacancy back to historical average (dotted lines in chart)

From Dec 2000 to Dec 2021, nominal house prices in Los Angeles metro have increased 255% vs 85% in Cincinnati metro

that's 3x as much house price growth in LA... ...income growth has been slightly faster in LA, but not by much
from 2000 to 2020 (2021 data not available yet) per capita income in LA was up 118% vs 92% in Cincinnati

If house price growth goes from 20% to 5% annualized rate, I suspect it will create a narrative vortex where everyone's wildest dreams and darkest fears are all simultaneously confirmed That's kind of deceleration is pretty close to the consensus forecasts for the US over the next year or so (with as always outliers on both sides)

Did sentiment turn positive in the October Fed Beige Book "weak" terms showing up less frequently

What to make of that giant US existing homes sales print this morning?

I wouldn't get overly excited, it's still primarily catch up from a lost spring.

Consider this chart (i'll explain) 1/n If you follow me, you've seen me do a chart like that for weekly home purchase mortgage applications, which pick up related trend (not all home sales get mortgages)

If not, welcome friend, and see here 2/7
lenkiefer.com/2020/10/10/hou…

US weekly average 30-year fixed mortgage rates, 2.80% this week.

A record low

freddiemac.com/pmms/ rates almost reached 5% in November of 2018 and since have been on a steady decline

US home purchase mortgage activity compared to pre-pandemic trend

US single-family housing starts: link to report
census.gov/construction/n…

#mortgage rates tick up this week
freddiemac.com/pmms/

charts!
1/ still super low though

2/

Assuming we aren't in recession right now, the current expansion will tie the 1990s expansion for longest in U.S. history. Let's take a look at how housing markets have behaved in this expansion relative to earlier ones
a thread... hold on, wait.
let's back up.
here's a typical chart of U.S. housing starts, with expansions/recession shaded
then, overlaid...