According to a study conducted this spring by Clever Real Estate: about 45% of home sellers said they believed the housing market was headed for a crash in 2022. Myth or reality? To allow you to better understand the current state of the real estate market and forge your own opinion below is a synopsis of critical data you should know about.
This is true that the hikes in interest rates implemented by the Federal Reserve since the beginning of the year in an attempt to curb inflation have impacted home buyers' confidence and buying power leading to changes in supply with more homes for sale, fewer bidden wars and more price reductions. That said, it does not necessarily mean that the real estate market is about to crash, and here is why:
1). Instead of a housing surplus like there was in 2008, we are still facing a severe inventory shortage. Homebuilders put more than 2 million housing units a year into the pipeline in the years leading up to the 2008 bubble and were overbuilding at the time. Today, it is exactly the opposite. We still have historically low inventory levels.
2). Mortgages are structured differently today. The kind of subprime lending that was blamed for the 2008 crash is a much smaller and more regulated part of the market. As far as adjustable-rate mortgages are concerned, even if more and more buyers are using them to purchase a home since the recent hikes in interest rates, the lenders are requiring the borrowers to demonstrate that they can afford the fully reset rate before they got approve for thy these type of loans.
3). Despite the hikes in interest rates, some buyers simply view the current state of the real estate market as a second chance to get into the market after being outbid by others over the past two years.
4). Even if affordability has taken a hit with higher mortgage rates, people still want to buy homes as real estate has always been considered an edge against inflation. For instance, locking in a fixed-rate mortgage now will protect homeowners against future increases in housing prices. Such an opportunity doesn’t exist when you’re renting and renting doesn’t offer the ability to build equity.
5). The slight decrease in home prices we are currently encountering which varies depending on the type of property, its location, and the school district is a sign that the market is adjusting to a higher rate environment. One can expect a period of deflated sales activity until the market normalizes.
To conclude, a market deceleration is not the same as a market crash. Rising interest rates, as well as buyers’ fatigue from bidding wars, have caused the market to stabilize and return closer to normal. As a result, the double-digit price appreciation we’ve become accustomed to begins to slow down but we are far away from having properties that are worth less than what they were purchased for. If this ever happens again, then the real estate market would be in mayhem.
Source: https://bit.ly/3oFXSiG