It would be easiest to jump on the dooms day band wagon and predict a housing market crash. After all, no one criticizes pessimists when markets perform better than they predict. We aren’t as kind to those who overshoot with rosy predictions, though. Yet the reality I see in the housing market - as the factors stand today – is promising. So allow me to put my head on the chopping block and suggest that the housing market may see a soft landing this next recession rather than the crash and burn we saw in 2008. A big reason why? Most homeowners have likely secured a refinance on their home or financed their new property in the last five years. After all, record low interest rates have that affect.
These historic rates afford many homeowners a better monthly payment than what they could get in the low-inventory, inflated-cost rental market today. Holding onto these great rates may constrict resale home inventory – which has been on the decline the last ten years. An unsaturated market with lots of homeowner equity due to solid lending practices may more likely pave the path to a market correction vs. a market crash like we saw in 2008. According to Moody’s Analytics chief economist Mark Zandi, if we do find ourselves in a recession, he expect to see a “5% nationwide home price drop—including a 15% to 20% drop in America’s most “overvalued” regional housing markets”. These overvalued markets always face volatility dissimilar to that of the average market most American’s live in. But the reality is bigger-than-originally-forecasted interest rate spikes - brought on by government interference in an attempt to slow down inflation – will negatively impact the housing market somewhat. According to Fortune Magazine, over the past six months, the average 30-year mortgage rate has spiked from 3.1% to 6.28% as the Federal Reserve flipped into inflation-fighting mode. And that is likely to go even higher in the upcoming days. Mortgage rates are at their highest level since 2008. And these rate jumps mark the biggest upward swing since 1981! “However, with homeowners now leveraging more than $9.9 trillion in home equity and mortgage lenders enforcing strict standards, it's unlikely the real estate market is heading towards a crash — especially the likes of 2008”, according to Business Insider. As the real estate market cools, the fundamentals that supported its growth — like record high home prices and home equity — are likely to keep it relatively healthy. This could mean a correction rather than a crash is on the horizon. What’s your prediction? Kat Medaries, REALTOR® Long & Foster Real Estate, Village of Midlothian Sales Licensed to sell in the Commonwealth of VA Equal Housing Opportunity For informational purposes only. Not intended as legal, financial or credit counseling advice.
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