Housing Market Crash 2022: What To Expect As Interest Rates Rise

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key takeaways

  • Current home sales fell 0.4% from July, with an overall decline of 19.9% ​​from a year earlier. This is attributed to higher mortgage rates that have made monthly payments more expensive than ever.
  • Google Trends shows that search queries for “real estate market crash” have skyrocketed in the past month.
  • When the Fed is trying to fight inflation and cool the economy, mortgage rates have hit 20-year highs.

Many optimistic homeowners are waiting for a crash in the housing market to finally enter the market. While it appears that home prices are softening, homes are not becoming more affordable as mortgage rates skyrocket, reaching 20-year highs.

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Consumers are uncertain about the future of the economy as inflation continues to rise. While the Fed continues to raise rates to restore the balance of supply and demand, many potential home buyers aren’t sure what to do. They want to enter the market, but many of us are frustrated by the fear of recession.

Due to hike in rates, the real estate market is cooling off regarding sales and prices. However, there is more to the story as the fight against inflationary wages continues. We will look at the potential for a housing market crash as interest rates rise.

Why are interest rates still rising?

The Fed has been raising interest rates since March 2022, when they finally had to acknowledge that inflation was no longer temporary. When the cost of borrowing goes up, so do mortgage rates. The Fed has also indicated interest rates to reach 4.6% in 2023.

As the Fed combats inflation by raising rates to slow the economy, there are going to be many sectors that feel the pain. The housing market is one area where the results will be felt as mortgage rates will make consumers hesitant to enter the market.

What do the rate hikes mean for the housing market?

The hike in interest rates is aimed at slowing down the housing market, which has propelled itself to new heights in the past few years.

The country was already grappling with a housing shortage even before the pandemic began. Then, when the pandemic hit, many people were working from home and had the freedom to move.

With so many Americans opting to relocate because of the new freedom from remote work, it increased demand in smaller markets and sparked bidding wars.

The biggest issue with increasing rates is that everything becomes more expensive for the average consumer. This is disappointing because inflation is already responsible for rising prices, and people face additional increases in relation to internet rates.

Rising interest rates are making mortgage payments more expensive. In September 2022, the average rate of 6.29% on a 30-year fixed mortgage meant an additional $600 was added to the monthly cost of being a homeowner on top of the increased cost of everything.

Going forward, potential homebuyers will be hesitant to enter the real estate market as it costs more to borrow money. It also doesn’t factor in any additional help needed to upgrade the home.

What’s up with the real estate market right now?

There are always many factors involved that affect the housing market, from home sales to interest rates on homes in the market. Here’s what’s happening with the real estate market right now.

Interest rates not making mortgages affordable

Since rates have just hit a 20-year high, many are anticipating the arrival of the real estate market. Current housing prices are too high for consumers who are already battling rising inflation and an impending recession.

With mortgage rates rising from 3.05% to about 6.92%, the monthly mortgage payment on the median asking price home has risen 51%. The mortgage payment of $1,698 is now $2,559 per month.

house prices are falling

Fannie Mae economists predict that national real estate prices will drop by an average of 1.5%. This is a pivot from the original prediction of 4.4% home price growth for the year.

According to real estate software company Black Knight, average home prices fell 0.98% in August. This is only marginally better than the 1.05% drop in July and means that July and August saw the biggest monthly decline in real estate prices in 13 years.

These figures indicate that rate hikes are working to an extent in local markets, at least enough to affect the national average.

home sales are down

According to the National Association of Realtors, current home sales were down 19.9% ​​compared to a year ago. While the August numbers were higher than expected, with an annual pace of 4.8 million, a 0.4% drop from July.

Redfin. research from Identified some important real estate statistics that indicate how home sales are declining:

  • The sold homes were on the market for an average of 33 days, up from 25 days a year ago.
  • New sales listings were down 19% compared to the previous year.
  • 30% of homes sold went above list price, up from 45% a year earlier.
  • Mortgage applications were down 39% compared to the previous year.

These figures suggest that home sales are eventually slowing down as plans to cool the economy with higher rates make a significant difference to the real estate sector.

Now it’s time to address the elephant in the room.

Will the real estate market crash?

According to Google Trends, search results in the US for “real estate market crash” increased 284% in September. Many are concerned about the possibility of a crash as many are watching to see how the economy reacts to rate hikes.

There’s a difference between a crashing real estate market and a drop in home sales. Federal Reserve Chairman Jerome Powell said last month that the real estate market will cool down and a correction is likely just after the 0.75% rate hike was announced.

Powell also noted that the central bank wants supply and demand to better align so that home ownership is not unattainable for the average American. The point is that it is difficult to design the right conditions when it comes to housing prices.

Realistically, record-high real estate prices matched by high interest rates are driving people off their homeownership plans. Even though real estate prices are softening, there is not much of a difference as prices have increased drastically during the pandemic.

The reality is that we will need to see house prices drop for several months.

It remains to be seen whether we officially enter a recession. This would mean that the economy is shrinking, leading to various financial consequences ranging from job losses to the entire economy shrinking.

Fannie Mae economists believe the real estate market will push the economy into recession in 2023.

The goal of increasing the rates is to restore the supply and demand balance. However, we must pay attention to see what would happen if both supply and demand fell simultaneously.

We will track real estate inventory, as there can be major problems when there are not enough homes for people looking to buy. The market currently has a housing supply of about three months.

Realtor.com shows an annual increase of 26.9% in the national list of active listings. This means that there are still options in the market for those looking to buy a home.

How should you invest?

Making the decision to invest in real estate can be difficult when you see rates rising and hear constant droning about slow sales. Until the housing market gets cooler, most of us will continue to invest in the stock market while we work to save enough money for the down payment.

If you want to invest your money the right way, Q.ai takes the guesswork out of investing. Our artificial intelligence scours the markets for the best investments for all types of risk tolerances and economic conditions. Then, it bundles them investment kit Which makes investing easy.

ground level

High interest rates and overall uncertainty in the market make us all nervous about the real estate market.

It is difficult to determine what will happen next as we await to see the results of these continued rate hikes. However, we do know that bidding wars seem to be a thing of the past as housing prices are slowly coming down.

Download Q.ai today For access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $100 to your account.

Credit: www.forbes.com /

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