The housing market has always been a micro-indicator of the economy. When the economy is strong, the volume of homes sold increases, and market activity strengthens. When economic uncertainty rears its head, new home construction, housing sales, and home remodeling – slows down. So what is happening today in our market and in the world of real estate around us? Key points are below.
Will the Housing Market Crash?
I do NOT believe the housing bubble is going to burst, as it did in 2008. While demand is certainly outpacing supply, which is causing real estate prices to rise, the government has put safeguards in place to help prevent a sudden crash. This includes more stringent lending standards and higher interest rates. Plus, the United States is enjoying a strong job market, which provides financial stability for consumers.
Instead, I believe the market is going to self-correct, by flattening or even taking a slight decrease later this year or early in 2023.
When Will Housing Supply Meet the Demand?
According to Dave Meyer
, VP of Data and Analytics at BiggerPockets
, data shows that while more people want to buy than can currently find a house in their budget, this demand is starting to decrease slightly. This is mostly due to rising interest rates for mortgages.
In his article
, Meyer states that “15% of first-time homebuyers will be priced out of the market this year”,
according to data supplied by the National Association of Realtors. Further, he points out that there is an 11% year-over-year decrease in new purchase applications, according to information provided by the Mortgage Bankers Association.
While this drop may seem concerning, Meyer goes on to point out that “it’s not been enough to slow down the market so far. Prices are still moving upward. Remember, demand was super high last year, so -11% from 2021 is still pretty solid demand, especially when considering how few properties are on the market for people to even buy. Demand is starting to falter as prices and interest rates rise. It’s just not enough to make any dent in prices or inventory, at least with the data available in early May 2022.”
For a bubble to burst, we would need to see demand reduce quickly and drastically – and that’s just not happening.
Meyer states: “For housing prices to decline, properties must sit on the market for long periods of time. Only once sellers see their property sit for a few weeks will they consider lowering prices. If that happens for a couple of months, sellers might adjust their expectations for sales prices, but that will take some time.”
Think back to basic supply and demand economics. When supply outstrips demand, prices will drop. But according to Redfin data cited in Meyer’s article, the current housing inventory is at about 600,000 properties and they’re sitting on the market for an average of 20 days. To give you some perspective, the pre-pandemic supply was 1,500,000 homes and 45 days on the market. Clearly, houses are still in high demand!
“Supply is extremely low, and for the market to crash or even moderate, inventory needs to increase,” Meyer writes. “We have a long way to go – I’m not talking about a little more inventory. We need inventory to at least double – maybe even triple – over a few months for the market to crash.”
Think about it. This inventory can’t appear out of thin air.
The government’s forbearance program is suppressing the number of foreclosures and people have more home equity than they did in the 2008 crisis. And if you look at residential construction, it’s not moving fast enough to keep up with demand! Between a tight labor market and supply chain issues, new construction isn’t going to solve the home supply problem anytime soon.
At Double Boldt Real Estate, we care deeply about you, your family, and your home. We are committed to your bottom line and providing a smooth, custom-tailored experience. As experts in Wauwatosa, Elm Grove, Brookfield, and the surrounding areas of beautiful southeast Wisconsin, we know, love, and work for the communities we are fortunate enough to call home!