The US housing market is grappling with a recession, and home prices could dip another 20% by next summer, a top economist has cautioned.

"The plunging trend in sales has further to go, and prices are falling," Ian Shepherdson, the chief economist of Pantheon Macroeconomics, said in a research note published on Wednesday.

Shepherdson and his team estimated that seasonally adjusted existing-home prices slid by 0.7% in August, the third monthly plunge in a row. Prices are now down about 5% from their May high and are poised to tumble further despite a tight supply of homes, they said.

"The very low level of inventory means that a headlong collapse in prices is unlikely, but we still expect a total decline of up to 20% by the middle of next year," the economists wrote.

"Housing, in short, is in recession, and everything connected to housing either is in recession now or soon will be," they added.

Nonethelss, they explained that the current housing downturn won't crash the rest of the US economy, as the market has fewer entrenched risks than during the mid-2000s housing bubble.

Still, inflation, which skyrocketed to a 40-year high in June and remained above 8% in August, has squeezed consumers' budgets.

The Federal Reserve has reacted aggressively by hiking interest rates from near zero at the start of this year to over 3%, raising borrowing costs and driving long-term mortgage rates to the north of 6% for the first time since 2008.

The median existing-home price has plummeted by 6% from a record high of about $414,000 in June, to $390,000 in August, the National Association of Realtors said this month. Moreover, existing-home sales fell for a seventh straight month in August and were down 20% from a year earlier, the trade group said.

Fed Chair Jerome Powell has signaled the US central bank wants to bring down house prices.

"We've had a time of a red-hot housing market all over the country," Powell noted. "The deceleration in housing prices that we're seeing should help bring prices more in line with rents and other housing-market fundamentals. And that's a good thing."