The housing market has been volatile in the past 2 years, with huge changes happening nearly overnight. On the bright side, everything that goes up must come down, and we are on the precipice of a housing marketing correction!
What is a Housing Bubble and Are We in One?
What is a housing bubble?
A housing bubble is a run-up in housing prices due to economic circumstances. Usually, the factors that will cause a housing bubble will include demand, speculation, and overspending on property. The current housing market could be considered to be experiencing a bubble, but the reasons are slightly different than housing bubbles in the past.
Our current ‘bubble’ can be attributed to the COVID-19 pandemic, rising costs of building materials, and low-interest rates for those looking to secure a mortgage. Additionally, investors buying up large quantities of property have influenced the behavior of our current market, decreasing inventory and driving up demand.
Luckily for prospective homebuyers, housing bubbles are temporary, and most real estate experts do not believe we are truly experiencing a housing bubble in 2022. For example, in 2008: hedge funds and banks were encouraging home ownership so fervently that rules and regulations were eased to get people into mortgages, and unvetted borrowers lost their homes as they were allowed to borrow more than they could afford.
Are we truly seeing a housing bubble in NC? Read more here.
Will House Prices Drop In 2022?
There’s no denying that home prices have surged over the past few years, but are we coming to the end of that trend? Prices increased by 11% in 2020, and 18.8% in 2021, and while we’re still gathering data about 2022, experts project that prices will have increased by nearly 11% by the end of 2022.
Based on that prediction, increases in home prices are expected to level out. Rising interest rates will significantly correct these rising prices.
While experts are forecasting more affordable housing over the next few years, it may be 2025 before we are able to experience that fully.
Is the Housing Market Due for Correction?
The housing market is a great example of why rising interest rates are not always a bad thing, in fact, it could be the saving grace for homebuyers. A chief economist from Moody’s Financial Data Services, Mark Zandi, claims that we have moved from a housing boom into a housing correction. New home sales have fallen over 19% nationally, and nearly 20% of home listings have cut their initial asking price.
When the housing market peaks, which we have reason to believe it has, it will always be followed by a correction. The Fed has increased mortgage rates to combat inflation, which will very likely trigger a cooling off of the housing market. Read more about the housing market cooling off here.
We’re still technically in a seller’s market, so if you’re looking to sell your home- read this first!