A deputy chief economist at Freddie Mac said housing is beginning the biggest contraction in over since 2006, however prices will not begin to collapse immediately.

Len Kiefer, deputy chief economist at Freddie Mac, said on twitter, “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. 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.”

In an interview with MarketWatch, Kiefer said mortgage applications, “gives you a sense of where the market might be headed, because that’s the early stages of when people are looking to buy a home. And if the volume of applications falls, that tends to indicate that in a month, month and a half, mortgage originations of home closings will also decline.”

Thursday morning, Freddie Mac released data showing mortgage rates have risen due to rising interest rates and inflation.

Freddie Mac’s research shows house prices do not necessarily track mortgage applications however. In Kiefer’s words, home prices “tend to be stickier, and while the rate of growth tends to slow, they don’t tend to fall.”

He concluded, “I don’t think that home sales are going to grind to a complete halt. They’ll just slow. People will still be able to sell homes, but it may take you just a little bit longer than what it’s been.”