Jeremy Grantham warns US house prices will drop, the S&P 500 could plunge 52%, and more banking problems may lie ahead

• Jeremy Grantham predicts that home prices in the United States will fall over the next few years.

• The GMO co-founder sees the S&P 500 drop to 2,000 points, which is a drop of 52%.

• The elite investor warns that the recent banking turmoil could strain other parts of the financial system.

Get ready for a prolonged decline in US home prices, a possible 52% drop in the S&P 500 index, and more banking troubles, Jeremy Grantham warns.

American homes are expensive relative to household income, and rising mortgage costs have eroded people’s ability to buy homes, according to a market historian and co-founder of GMO CityWire said In a recent interview.

Grantham predicted that as people gradually realize that their property is worth much less than they thought, they are likely to feel impoverished and cut back on foreign trips, graduate education, and other expensive items. He pointed out that the decline in spending could limit economic growth.

“It didn’t happen overnight, but housing casts a very long shadow and is a riskier economy than the stock market,” Grantham said. “The bad news is that it’s moving very slowly. The last peak was in 2006 and it didn’t go down until 2012 — it took six years.”

“I don’t see a meltdown, but I do expect house prices to drift back into more affordability,” he added.

The veteran investor sounded the alarm.Super BabelIt includes stocks, bonds and real estate in January 2022. He partly blamed the asset price boom on near-zero interest rates, which encouraged spending over saving and made borrowing very cheap.

However, in an effort to rein in historical inflation, the Federal Reserve has been raising interest rates to around 5% for the past 13 months or so. The US central bank’s actions raised the cost of mortgages, auto loans, credit cards, and other types of debt.

In addition to the housing downturn, Grantham predicts a sharp decline in stocks. Likely the S&P 500 He is drowning Between 27% and 52% of its current level of 4,130 points CityWire said.

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“The best we can hope for is to get that market to about 3,000,” he said. “The worst we have to fear are over 2,000.”

Knowing that this may sound extreme, Grantham noted that the benchmark index touched 666 points in 2009, meaning that if it fell at 2,000 points this time, it would still have tripled over the past 14 years.

Grantham also nodded to me Collapses at Silicon Valley Bank and Signature Bank in March, which sent shock waves through the financial system and raised fears of a possible credit crunch. He advised fixed-income investors to be careful, as further banking turmoil could threaten attractive yields on bonds.

“It appears that we are dealing with the possibility of mounting financial stress,” he said.

Read the original article at Business interested