Is the housing market about to crash? Here’s what experts say
Note: This story was originally posted by Bankrate.com by TJ Porter & Michele Petry on January 18, 2023.
After a record-breaking run that saw mortgage rates plunge to all-time lows and home prices soar to new highs, the U.S. housing market is finally slowing. Home sales had declined for 11 consecutive months as of December 2022, and home values seem to have peaked.
While demand and price gains are cooling, any correction is likely to be a modest one, housing economists and analysts say. No one expects price drops on the scale of the declines experienced during the Great Recession.
Rob Dietz, chief economist at the National Association of Home Builders, sums up the consensus among housing experts: “We’re thinking this is going to be a moderate downturn,” he says.
The real estate party raged on longer than anyone expected. The National Association of Realtors reported that median prices in the spring of 2022 topped $400,000 for the first time ever. Even after a recent retreat, prices are up a robust 32 percent since the coronavirus pandemic began in March 2020, according to NAR data.
Now, bidding wars have largely faded, inventories are loosening and the feeling of frothiness is gone. “The market is clearly turning,” says NAR chief economist Lawrence Yun.
Is the housing market going to crash?
The last time the U.S. housing market looked so frothy was back in 2005 to 2007. Then home values crashed, with disastrous consequences. When the real estate bubble burst, the global economy plunged into the deepest downturn since the Great Depression.
Now that the housing boom is threatened by soaring mortgage rates and a potential recession, buyers and homeowners are asking a familiar question: Is the housing market so hot that it’s about to crash?
Housing economists agree that prices could fall, but the decline won’t be as severe as the one homeowners experienced during the Great Recession. One obvious difference between now and then is that homeowners’ personal balance sheets are much stronger today than they were 15 years ago. The typical homeowner with a mortgage has stellar credit, a ton of equity and a fixed-rate mortgage locked in at a rate well below 5 percent. So no foreclosure crisis looms.
“The wild ride known as the U.S. housing market slowed dramatically in the fall of 2022, as mortgage rates surged and home prices remained high,” says Molly Boesel, principal economist at CoreLogic. “Home sales started strong in early 2022 but took a nosedive later in the year. On the plus side, generous amounts of home equity will protect many borrowers from experiencing the type of foreclosure activity seen during the Great Recession.”
What’s more, builders remember the Great Recession all too well, and they’ve been cautious about their pace of construction. The result is an ongoing shortage of homes for sale.
“We simply don’t have enough inventory,” Yun says. “Will some markets see a price decline? Yes,” he says. “[But] with the supply not being there, the repeat of a 30 percent price decline is highly, highly unlikely.”
Read the Full Story Here:
https://www.bankrate.com/real-estate/is-the-housing-market-about-to-crash/
