By Sean Colón
A Closer Look at the Housing Market Amidst Rising Prices and Mortgage Rates:
As real estate professionals, it's essential to stay ahead of market trends and separate facts from fears. In recent times, there's been much speculation about a looming housing market crash, fueled by soaring property prices and historically high mortgage rates. However, let's dive into the numbers and market dynamics to gain a clearer picture.
Market Momentum Persists
Despite the odds, home prices have continued their upward trajectory. The latest Case-Shiller home price index reported that 19 out of 20 markets saw month-over-month gains in July. Even more compelling, the National Association of Realtors (NAR) found that over half of US metro areas recorded home price gains in the second quarter of 2023.
Is the Housing Recession Really Over?
We've heard murmurs of a "housing recession," and many expected a correction in the housing market. However, contrary to these expectations, the housing market has not only held its ground but shown signs of continued growth. According to NAR, median sale prices of existing homes are hovering near record highs. In August 2023, home prices saw a year-over-year increase of 3.9%, reaching $407,100, closely approaching the all-time high of $413,800.
NAR's Chief Economist, Lawrence Yun, boldly stated, "The housing recession is essentially over." So, what's driving this resilient market?
Supply, or the Lack Thereof
One significant factor is the lack of housing supply. With a meager 3.3-month supply of homes, the market remains incredibly tight. This scarcity is preventing home prices from declining. Rick Arvielo, head of mortgage firm New American Funding, succinctly puts it, "You're not going to see house prices decline when there's just not enough inventory."
Skylar Olsen, Chief Economist at Zillow, concurs, predicting that home prices will continue to rise into 2024, mainly due to the ongoing supply-demand imbalance.
A Cautionary Eye on Mortgage Rates
One might wonder how home values can stay steady when mortgage rates have surged past 7 percent, reaching their highest point in over two decades. Federal Reserve Chairman Jerome Powell highlighted the influence of interest rates on the housing market, emphasizing that it's closely monitored. The relationship between rates and housing is indeed sensitive.
Housing Correction, but Not a Crash
So, is a housing market crash imminent? While it's natural to draw parallels to the housing bubble of the mid-2000s, several factors make today's market vastly different.
Low Inventories: Currently, the market suffers from low inventories, with only a 3.3-month supply of homes. This shortage limits the potential for price crashes.
Cautious Builders: Unlike the pre-2007 era, builders have been cautious in their construction pace, preventing an oversupply.
Changing Demographics: Strong demand from various demographics, such as those seeking larger homes due to remote work and millennials entering prime buying years, continues to drive the market.
Strict Lending Standards: Lending standards today are robust, with lenders requiring excellent credit, unlike the subprime lending practices of the past.
Muted Foreclosure Activity: Foreclosure activity remains minimal, with homeowners holding substantial equity in their properties.
While the housing market might be stretching the limits of affordability, experts concur that this won't culminate in a devastating crash. Instead, the market is experiencing a period of adjustment, with various forces balancing each other out.
In conclusion, real estate professionals should remain vigilant, closely monitor market conditions, and adapt their strategies accordingly. The current market presents challenges, but it's far from a doomsday scenario. By staying informed and agile, you can continue to thrive in the evolving real estate landscape.
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