Is our market heading for a crash? I’ll explain why I don’t think it is.
I saw a recent headline on CNN that went something like, “A Housing Bubble Is Brewing.” It sounds scary, but is it true? There’s a lot of volatility in the market, so let’s take a deep dive into what’s happening and find out if a bubble is right around the corner.
One of the biggest issues with our market is that affordability is disappearing. When interest rates were only 3%, it didn’t matter that home prices were skyrocketing because monthly payments remained low. Now, rates are in the high fours and low fives. If you could have afforded a $500,000 home at 3%, now you can only afford a $400,000 property.
Despite the recent hit to affordability, prices have not gone down. Across the country, we’re seeing record prices, and it’s because supply is at an all-time low. Despite this, demand remains strong. Why is that?
Historically, when interest rates rise, buyer demand initially increases. This is due to basic FOMO, or the fear of missing out. The Federal Reserve plans to increase rates further, so buyers want to purchase a home at a lower rate while they still can. While rising rates may speed up the market in the short term, they will slow things down in the long run. For example, many buyers who were looking to make a small upgrade may settle for a remodel.
Does this mean we’re heading for a bubble? I don’t think so, and there are a couple of key reasons why. First, most homeowners have tons of equity. 40% of all homeowners own their houses outright, while another 32% have at least 50% equity. Another reason why we won’t see a crash is our historically low supply. 33% of all homes purchased in the U.S. are purchased by investors right now, and investors pay with cash.
In the fourth quarter of 2022, we might see the market flatline, depending on what happens with interest rates. However, a crash is very unlikely. Things will certainly slow down, but I don’t believe there is any reason to panic. If you’re going to sell this year, I recommend you do so while we’re still in a crazy-hot market.
If you have questions about today’s topic or anything else, please call or email me. I am always willing to help.