Experts Say Downturn In Housing Market is Possible

By It's On News Staff Aug16,2022
Experts say the probability of a downturn in the housing market is on the rise after mortgage applications recently showed a decline.

Experts say the probability of a downturn in the housing market is on the rise after mortgage applications recently showed a decline.

The COVID Housing Spike

During COVID when workers saw their jobs go remote, they ditched their apartments in places like New York City and California, for homes and apartments in markets like Las Vegas, Florida, and Austin.

During the pandemic, home prices soared as the number of empty homes for sale grew smaller, and demand increased. Between September 2019 and September 2020 homeowners accumulated about $1 trillion in additional home equity.

In 2021 the average for a 30-year fixed-rate mortgage reached a record low of 2.65%

America’s Current Housing Market

New housing plunged in July, more than economists had projected, and is the lowest level in more than a year. Home builders’ confidence also plunged to a new two-year low in August as higher interest rates, supply chain issues, and record home prices continue to exacerbate housing affordability challenges.

Forbes reported that “Ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment,” NAHB Chair Jerry Konte said, noting that buyer traffic fell to the lowest level since April 2014, barring the spring of 2020 when the pandemic first hit, in a “troubling sign” that consumers are now “sitting on the sidelines due to higher housing costs.”

Some home builders slashed prices in the last month to help boost sales and prevent cancellations

Looking Into the Future

New home sales plunged at a 61% annualized rate in the second quarter as mortgage rates hit 6%, about 2.5 points higher than last year at this time. Sales fell to about $5.1 million.

Earlier this week, the National Association of Home Builders declared a “housing recession” after builder confidence sank for the eighth consecutive month.

Fitch Ratings, which helps project housing markets, suggests that US home prices could sink by 10% to 15% in the case of a major housing slump, alongside a roughly 30% decline or more in housing activity over the next few years.

Fitch also pointed to several factors as “key indicators” for the health of the housing market, including US GDP growth, unemployment, consumer confidence, and home affordability.

As reported by the NY Post, warnings about a potential housing downturn spiked in recent months as the Federal Reserve tightened its monetary policies. Mortgage rates almost doubled since January, causing an affordability crisis for prospective homebuyers.

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