US home prices will likely have to decline by as much as 20% over the course of a multi-year correction before the housing sector can get back on track with historical trends, a research firm warned this week.

The most recent correction cycles that occurred in the US housing market, such as a bubble in the 1990s and the sector’s implosion in the mid-2000s, took several years to conclude, DataTrek Research co-founder Nicholas Colas said.

In the current market, US home prices have only begun to fall in the last few months – suggesting the declines will continue for the foreseeable future.

“US home prices need to fall by about 15-20 percent over the coming years in order to return to their long run growth trend. That process is clearly starting but has a good way to go,” Colas said in a note to investors this week obtained by Insider.

Colas stated that peak home prices in June were 29% higher than their historical trend.

US home prices surged to their highest level on record during a period of loose financial policy and low interest rates in response to the COVID-19 pandemic. But prices began a rapid descent this year as the Federal Reserve implemented interest rate hikes to cool inflation and slow the economy.

Mortgage rates have more than doubled this year, briefly topping 7% in October for the first time in 20 years. As of Thursday, a 30-year fixed-rate mortgage averaged 6.49%, according to Freddie Mac.

Increased rates have crushed home affordability for prospective buyers and forced sellers to slash their listing prices to jumpstart interest.

“Higher mortgage rates will do part of the work in bringing prices back down, of course, but history says any correction in this market will take time,” Colas added.

The Post has reached out to DataTrek Research for further comment.

Colas’ prediction matched that of Pantheon Macroeconomics’ chief economist Ian Shepherdson, who has also projected a home price decline of up to 20% during the current correction.

In a speech at the Brookings Institute earlier this week, Fed Chair Jerome Powell described conditions during a pandemic-era boom in the housing sector as a “bubble” that has since burst.

“Coming out of the pandemic, rates were very low, people wanted to buy houses, they wanted to get out of the cities and buy houses in the suburbs because of COVID,” Powell said. “So you really had a housing bubble, you had housing prices going up very unsustainable levels and overheating and that kind of thing.”

“Now the housing market will go through the other side of that and hopefully come out in a better place between supply and demand,” Powell added.