What Is Going On With This Market?

Andi • August 16, 2022

‘Recession’ is on everyone’s mind these days. Many of us recall the 2008 housing crash vividly. We either felt the financial pinch ourselves or saw others struggle to make their mortgage payments.

Now, to assuage some of your concerns. Lenders and regulators do not want to repeat the mistake of lending to people who are unable to repay their mortgages. In the first quarter of 2022, the average credit score for a mortgage borrower was a near-record 776. For comparison, during the Great Recession, credit scores dropped to 707.

According to a study conducted this spring, approximately 45% of home sellers believed the housing market would crash in 2022. Fears are growing as record-high home prices make more consumers concerned that the market is overheating. However, we are almost certainly NOT in a housing bubble. The majority of leading housing economists agree that the market is not in a bubble. Today’s market is vastly different from that of 2008, during the previous housing crash. For one thing, rather than a housing surplus, the country is facing a severe inventory shortage as a result of years of underproduction by homebuilders.

Housing inventory remains low. The country is about 3 million homes short of meeting buyer demand. Housing inventory will most likely remain a problem for many years to come.

Buyer demand for homes remains strong. Buying a house was the most aspired-to achievement among postgraduate students, surpassing getting a fulfilling job, getting married, having children, or traveling. There is still too much real demand and not enough inventory to meet it. Higher mortgage rates have reduced affordability, but people still want to buy houses.

Real estate can act as an inflation hedge. Locking in a fixed-rate mortgage now will protect homeowners from future price increases in real estate. Such an opportunity does not exist when renting, and rental prices have risen dramatically in recent years. Furthermore, renting does not allow you to accumulate equity.

A market correction is not synonymous with a “crash.” The housing market has recently shown signs of slowing. However, based on current evidence, there is no reason to believe that the fallout from a housing correction would be comparable to the 2007-2009 global financial crisis.

Have some markets gotten too hot? That is possible. However, economists put it in context: a 5% price correction in, say, Phoenix is possible, but that comes after a 50% price gain in just the last two years. Even if there is a localized price correction, it will not have a negative impact on the overall housing market or the financial banking system. Some buyers will simply see it as a second chance to enter the market after being outbid by others in the previous two years.

Housing dynamics remain strong, even as the double-digit price increases we’ve become accustomed to begin to slow. The National Association of Realtors predicts that price growth will slow to about 5% or 6% by the end of the year.

Rising interest rates and buyer fatigue from bidding wars have caused the market to stabilize and return to near-normal levels, but the market continues to favor home sellers. In a nutshell, the ‘Mad Rush’ of multiple buyers has ended.