Will the Housing Market Crash?
Over the last few years, housing prices have skyrocketed. This sent many into a buying frenzy, fearing they’d be priced out of the market forever. Buyers desperately made offers well above the asking price, while sellers enjoyed the power to choose from multiple extravagant offers. To say the housing market has not been buyer friendly is an understatement.
However, in recent months the tables have begun to turn. As the Federal Reserve increased interest rates and home prices remained high, many buyers could not afford the cost of real estate. For those that can still afford to buy, many fear we are on the brink of a recession and worry buying at this point may be a mistake.
Because of this, demand took a nosedive. In turn, the slow in demand has resulted in sellers being forced to lower their list price.
The tumultuous landscape of the real estate market has many concerned that we are on the brink of a 2008 repeat. Could this be the case? Let’s take a closer look:
What caused the housing market to crash in 2008?
While various factors influenced the housing crash in 2008, one of the most influential components was the lending practices that were accepted at the time.
In the years leading up to the 2008 housing market crash, lenders offered subprime mortgages to those who could not qualify for a traditional conventional mortgage loan.
Subprime mortgages are often issued to borrowers with a lower credit score and a higher chance of defaulting. Subprime mortgages generally have an Adjustable Rate Mortgage(ARM), which can fluctuate with the market, causing borrowers’ interest rates/payments to increase as rates rise.
The 2008 housing market crash was the perfect storm. The converging of subprime mortgages, rising interest rates, and crashing house prices resulted in borrowers being unable to afford their homes and, in turn, defaulting on their mortgage loans.
Is the housing market slowing down/crashing in 2023?
In recent months the housing market has begun to slow down. According to Fox Business, house prices are declining month over month. Many experts expect these decreases to continue throughout 2023.
The Federal Reserve once again raised interest rates in February of 2023. This continued rate hike will likely encourage a continued slowing of the housing market and a decrease in house prices.
While the housing market’s future is still unknown, it is clearly slowing down, and prices are decreasing for the time being. While these could be indicators of a housing market crash, many experts believe we will not see a crash but instead a market correction.
Will we see a repeat of 2008’s housing market crash?
The last time we saw the housing market this tumultuous was in 2008. leaving many fearful that this turmoil would lead to a 2008 repeat. However, one of the key differences in 2023 is the stability that most homeowners have regarding their financial situation.
In 2008, many borrowers had little equity in their homes, less stability financially, and subprime ARM mortgages that increased as interest rates surged.
Whereas in 2023, most homeowners have more equity in their homes, a fixed-rate mortgage, and higher credit scores. Leaving current homeowners in a much more secure spot to weather any economic storms that may come.
While the housing market is cooling and house prices are beginning to drop, a 2008 repeat seems unlikely.
According to Forbes, the housing market will likely continue cooling and correcting itself in 2023 and throughout 2024. While home prices will likely continue to drop, the market conditions are not mirroring what we saw in 2008.
By – Alexa Barber
This article was originally published on this site