2022-05-25 09:02:08
The Housing Market Is Showing Signs of a Correction: What This Means for Buyers and Sellers By Clare Trapasso
Cracks are beginning to appear in the red-hot housing market.
Spiraling mortgage rates on top of record-high and still-rising home prices are leading many experts to predict the real estate market is on the verge of a correction—if it isn’t already in one. They anticipate home prices will flatten, or even go down a bit, in certain markets.
Home sales have already been dropping; fewer buyers are seeking mortgages because they can’t afford the double whammy of high prices and rates on top of soaring inflation. Real estate agents are reporting smaller bidding wars and sellers cutting prices. Prices have even begun falling in a few parts of the country.
“A housing correction has begun,” says Mark Zandi, chief economist at Moody’s Analytics. “There are a growing number of cracks in the housing market, and they’re going to turn into fissures and fault lines in the coming months.”
Median home list prices in America hit a new high of $425,000 in April—up 14.2% in just one year, according to the most recent Realtor.com data. Meanwhile, average mortgage interest rates climbed to 5.25% in the week ending May 19. That’s a 75% increase in a year’s time.
The result is that new buyers would be paying about 50% more for the same home compared with a year ago in their monthly mortgage bills. And that’s greatly diminishing the buying power of many Americans—especially during a time when inflation has hit a 40-year high, gas prices have spiked, and even rent levels are nationally hitting new highs.
However, experts don’t believe the market is in a bubble or a crash is in the cards, like during the Great Recession. The nation is still suffering from a housing shortage that has reached crisis proportions at a time when many millennials are reaching the age when they start to consider homeownership. That’s likely to keep prices high.
In addition, lenders are giving mortgages only to the most qualified borrowers. These buyers are less likely to wind up in foreclosure. And prices aren’t expected to plummet unless another wave of foreclosures and short sales sweeps through the nation.
“Housing goes in big cycles. You see booms and busts frequently in real estate,” says Bill McBride, author of the economics blog Calculated Risk. He predicted the last housing bust. “Right now is a boom. But we will see a time when there’s open houses and there are only looky-loos and crickets.”
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