Jeremy Grantham warns US house prices will drop, the S&P 500 could plunge 52%, and more banking problems may lie ahead
Prepare for a prolonged decline in US house prices, a potential 52% plunge in the S&P 500, and more banking problems, Jeremy Grantham has warned.
American homes are very expensive relative to household incomes, and surging mortgage costs have eroded people's homebuying power, the market historian and GMO cofounderAs people gradually realize their properties are worth far less than they thought, they're likely to feel poorer and cut back on foreign trips, graduate schooling, and other big-ticket items, Grantham predicted. The decline in spending could temper economic growth, he noted.
"It doesn't happen overnight, but housing casts a very long shadow and economically is more dangerous than the stock market," Grantham said."The bad news is it moves very slowly. The peak last time was 2006 and it didn't trough until 2012 — it took six years."The veteran investor sounded the alarm on a"" spanning stocks, bonds, and real estate in January 2022.
However, in a bid to curb historic inflation, the Federal Reserve has hiked rates to about 5% over the past 13 months or so. The US central bank's actions have raised the cost of mortgages, car loans, credit cards and other types of debt. In addition to a housing downturn, Grantham predicted a sharp decline in stocks. The S&P 500 is likely to
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