After the US housing market experienced a boom in 2020, it seems to be slowing down. Experts predict a major adjustment in the US housing market that may cause a 20% decline in the price of properties.
What’s Going on in the US Housing Market?
Moody’s Analytics data shows that in January 2023, single-family home prices experienced a 1% decline compared to December 2022. Unfortunately, the rise in mortgage rates in the last quarter of 2022 caused a decrease in the demand for property by Americans. There was little impact on the prices of properties because of the comparatively few homes available in the market.
The high mortgage rates are finally affecting home sales and prices. According to an analysis by real estate firm Redfin, the average selling price of a home in the US for the four weeks ending on February 26 was $350,246. This marks a 0.6% decrease from the same month last year, the first time in over a decade that home prices have experienced an annual decline. This decline is attributed to the surging mortgage rates, which have pressured the housing market.
In Alaska, there was a 4.9% fall in the price of homes, making it the largest decline in month-over-month prices in January. Other states like New Mexico and Wyoming came very close to this margin, recording a 3.8% decline. Mississippi had a 3.7% home price drop in January compared to December 2022. Nevertheless, there was some rise in home prices month-over-month in places like Indiana, West Virginia, and Vermont by 2.2%, 1.1%, and 1%, respectively.
Will the Housing Market Crash?
As people look to the economic calendar to spot upcoming socio-political activity or financial news, like the MBA 30-Year Mortgage Rate, house price index YoY, and other pointers that may influence the housing market, there’s a continuous drop in buyer demand. Although there are speculations that this drop in demand may lead to a crash in home prices, that isn’t the reality yet since there’s only a gradual fall in price at the moment. Experts believe that one reason why property sales are poor is because of the reluctance of sellers to list their properties.
Most sellers are willing to keep the ultra-low mortgage rate they’ve secured over the last two years. This hampered demand as it became difficult for buyers to find properties that met their needs.
Comparisons have been made to the events of 2005 to 2007, which led to the great recession of 2008. A real estate bubble burst led to the financial crisis and the housing market crash in 2008. The recent happenings in the housing market seem to paint a similar picture as the housing boom takes a hit from the potential recession and higher mortgage rates. This has led to speculations, opinions, and questions from different stakeholders within the market, suggesting a possible crash.
Analysts and economists believe there may be a fall in price, but it will not end up in a similar situation as the great recession. They believe homeowners’ finances were much better than 15 years ago when the market crashed.
Despite surging mortgage rates and plunging home prices, housing economists believe a house market crash is unlikely. They point to the very low inventory, the inability of builders to meet demand, and the arrival of a new demographic of home buyers as solid factors that will prevent another housing market crash. Overall, there’s a consensus that the boom will likely not end in a burst.
