As property values shot up at an unsustainable pace in the wake of the COVID-19 pandemic, many real estate experts predicted the eventual demise of the real estate market. However, three years later, home prices are still high despite the aggressive interest rate hiking policy initiated by the Federal Reserve Bank. The median existing-home sales price finally started to decline in February 2023 in year-over-year comparisons, according to the National Association of Realtors (NAR), breaking a 131-month streak of record increases.
Between mortgage rates twice as high as they were in previous years and home values still close to all-time highs, would-be homebuyers priced out of the market would certainly welcome friendlier price tags.
Others are wary about a housing market crash with consequences as disastrous as 2008. While high property prices could be synonymous with a real estate bubble, the current situation differs greatly. Increased property values are driven primarily by the limited inventory, a concern that predates the COVID-19 pandemic.
Experts Weigh-In on Housing
“If current economic conditions persist, with elevated mortgage rates and home prices amid scarce inventory, the market is likely in for a long, slow climb and a few bumps along the way,” said Danielle Hale, chief economist at Realtor.com.
Current homeowners are understandably concerned about giving up their relatively affordable mortgages, while home builders are facing numerous obstacles, including labor shortages, increasing material prices, and challenging local regulations. Therefore, it is unlikely that the housing shortage will be solved any time soon. “We assign a lower probability of a housing market crash in 2023 since a ‘crash’ would likely be the result of mortgage defaults, foreclosures, and forced property liquidations,” says Jack Macdowell, chief investment officer and co-founder of the investment management firm Palisades Group, adding that “the most significant risk to the near-term market outlook is the potential for a severe recession and/or prolonged stagflation.”
Some regions have seen a decline in housing prices, particularly in areas that experienced big price booms during the pandemic, such as Austin, Texas; Phoenix; and West Coast metro areas. However, dynamic cities in the Sunbelt and Florida are still on an upward trajectory. “Home prices continue to rise in regions where jobs are being added, and housing is relatively affordable,” notes Lawrence Yun, chief economist at NAR. “However, the more expensive areas of the country are adjusting to lower prices.”
That is not to say that the situation will remain smooth sailing. Foreclosures are rising, with a 22% increase in foreclosures in Q1 2023 compared to the previous year, according to property data provider ATTOM. “This unfortunate trend (in foreclosure activity) can be attributed to a variety of factors, such as rising unemployment rates, foreclosure filings making their way through the pipeline after two years of government intervention and other ongoing economic challenges,” said Rob Barber, chief executive officer at ATTOM.
We’ll keep you updated on further forecasts. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
