Rising interest rates and slightly lower demand in the market has caused many people to believe that a housing crash is imminent. Despite some signs that the market is slowing down, you shouldn’t get too worried or excited about the possibility of a housing crash.
Recent Economic and Market Changes
Inflation in the U.S. has been on the rise since mid 2021 and reached a 40-year high of 8.2% in September. To combat the increase in inflation, the Federal Reserve has increased interest rates multiple times throughout 2022, making it more expensive to borrow money. These rapid rate changes directly impact the housing market – mortgage rates have doubled this year, which has caused some buyers to pause their home search, and sellers to receive fewer offers on average.
Another factor at play is the Russian-Ukraine war. A ban on Russian oil has driven up energy prices, which in-turn has led to more inflation.
These rapid changes in consumer prices and home prices have been jarring for many consumers and have stirred concerns of a recession and/or housing crash. The good news is that the U.S. job market remains strong, and consumer spending is steady despite the effects of inflation.
Signs Point to a Strong Market
Despite the warning signs that the housing market might be slowing down, there isn’t any indication that there’s going to be a significant downturn in the market that will allow you to buy a home at a much cheaper price.
For one, buyer demand is still high. Many Millennials are expected to buy homes for the first time in the coming years. In 2021, first-time homebuyers made up the largest share of homebuyers at 34%. Since there are a high number of first-time buyers in the market, it’s likely that demand will continue to be strong for the foreseeable future.
Secondly, housing inventory remains near historical lows. A housing crash usually happens when there is excess inventory and hardly any buyers. Lending standards are also much stricter today than in 2008, reducing the number of loan defaults and foreclosures.
As long as home values and demand remain high, there isn’t much that can cause the housing market to crash. If you want to buy a home, property values might drop slightly throughout the remainder of 2022, however you shouldn’t expect a sizable drop anytime soon.
