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Is the Real Estate Market Slowing Down, or Is This a Housing Bubble?

Is the Real Estate Market Slowing Down, or Is This a Housing Bubble?

The talk of a housing bubble in the coming year seems to be at a fever pitch as rising mortgage rates continue to slow down an overheated real estate market. Over the past two years, home prices have appreciated at an unsustainable pace causing many to ask: are things just slowing down, or is a crash coming?

To answer this question, there are two things we want to understand. The first is the reality of the shift in today’s housing market. And the second is what experts are saying about home prices in the coming year.

The Reality of the Shift in Today’s Housing Market

The reality is we’re seeing an inflection point in housing supply and demand. According to realtor.com, active listings have increased more than 26% over last year, while showings from the latest ShowingTime Showing Index have decreased almost 17% from last year (see graph below). This is an inflection point for housing because, over the past two years, we’ve seen a massive amount of demand (showings) and not enough homes available for sale for the number of people that wanted to buy. That caused the market frenzy.

Today, supply and demand look very different, and the market is slowing down from the pace we’ve seen. This offers proof of the sudden slowdown so many people are feeling.

Is the Real Estate Market Slowing Down, or Is This a Housing Bubble? | Keeping Current Matters

What Experts Are Saying About Home Prices in the Coming Year

Right now, most experts are forecasting home price appreciation in 2023, but at a much slower pace than the last two years. The average of the six forecasters below is for national home prices to appreciate by 2.5% in the coming year. Only one of the six is calling for home price depreciation.

Is the Real Estate Market Slowing Down, or Is This a Housing Bubble? | Keeping Current Matters

When we look at the shift taking place along with what experts are saying, we can conclude the national real estate market is slowing down but is not a bubble getting ready to burst. This isn’t to say that a few overheated markets won’t experience home price depreciation, but there isn’t a case to be made for a national housing bubble.

Bottom Line

The real estate market is slowing down, and that’s causing many to fear we’re in a housing bubble. What we’ve experienced in the housing market over the past two years were historic levels of demand and constrained supply. That led to homes going up in value at a record pace. While some overheated markets may experience price depreciation in the short term, according to experts, the national real estate market will appreciate in the coming year.

Why Today’s Housing Inventory Proves the Market Isn’t Headed for a Crash

Why Today’s Housing Inventory Proves the Market Isn’t Headed for a Crash

Whether or not you owned a home in 2008, you likely remember the housing crash that took place back then. And news about an economic slowdown happening today may bring all those concerns back to the surface. While those feelings are understandable, data can help reassure you the situation today is nothing like it was in 2008.

One of the key reasons why the market won’t crash this time is the current undersupply of inventory. Housing supply comes from three key places:

  • Current homeowners putting their homes up for sale
  • Newly built homes coming onto the market
  • Distressed properties (short sales or foreclosures)

For the market to crash, you’d have to make a case for an oversupply of inventory headed to the market, and the numbers just don’t support that. So, here’s a deeper look at where inventory is coming from today to help prove why the housing market isn’t headed for a crash.

Current Homeowners Putting Their Homes Up for Sale

Even though housing supply is increasing this year, there’s still a limited number of existing homes available. The graph below helps illustrate this point. Based on the latest weekly data, inventory is up 27.8% compared to the same week last year (shown in blue). But compared to the same week in 2019 (shown in the larger red bar), it’s still down by 42.6%.

Why Today’s Housing Inventory Proves the Market Isn’t Headed for a Crash | Keeping Current Matters

So, what does this mean? Inventory is still historically low. There simply aren’t enough homes on the market to cause prices to crash. There would need to be a flood of people getting ready to sell their houses in order to tip the scales toward a buyers’ market. And that level of activity simply isn’t there.

Newly Built Homes Coming onto the Market

There’s also a lot of talk about what’s happening with newly built homes today, and that may make you wonder if we’re overbuilding. But home builders are actually slowing down their production right now. Ali Wolf, Chief Economist at Zonda, notes:

“It has become a very competitive market for builders where they are trying to offload any standing inventory.”

To avoid repeating the overbuilding that happened leading up to the housing crisis, builders are reacting to higher mortgage rates and softening buyer demand by slowing down their work. It’s a sign they’re being intentional about not overbuilding homes like they did during the bubble.

And according to the latest data from the U.S. Census, at today’s current pace, we’re headed to build a seasonally adjusted annual rate of about 1.4 million homes this year. While this will add more inventory to the market, it’s not on pace to create an oversupply because builders today are more cautious than the last time when they built more homes than the market could absorb.

Distressed Properties (Short Sales or Foreclosures)

The last place inventory can come from is distressed properties, including short sales and foreclosures. Back in the housing crisis, there was a flood of foreclosures due to lending standards that allowed many people to secure a home loan they couldn’t truly afford. Today, lending standards are much tighter, resulting in more qualified buyers and far fewer foreclosures. The graph below uses data from ATTOM Data Solutions on properties with foreclosure filings to help paint the picture of how things have changed since the crash:

Why Today’s Housing Inventory Proves the Market Isn’t Headed for a Crash | Keeping Current Matters

This graph shows how in the time around the housing crash there were over one million foreclosure filings per year. As lending standards tightened since then, the activity started to decline. And in 2020 and 2021, the forbearance program was a further aid to help prevent a repeat of the wave of foreclosures we saw back around 2008.

That program was a game changer, giving homeowners options for things like loan deferrals and modifications they didn’t have before. And data on the success of that program shows four out of every five homeowners coming out of forbearance are either paid in full or have worked out a repayment plan to avoid foreclosure. These are a few of the biggest reasons there won’t be a wave of foreclosures coming to the market.

Bottom Line

Although housing supply is growing this year, the market certainly isn’t anywhere near the inventory levels that would cause prices to drop significantly. That’s why inventory tells us the housing market won’t crash.

3 Tips for Buying a Home Today

3 Tips for Buying a Home Today

If you put off your home search at any point over the past two years, you may want to consider picking it back up based on today’s housing market conditions. Recent data shows the supply of homes for sale is increasing, giving buyers like you additional options.

But it’s important to keep in mind that while inventory is improving, it’s still a sellers’ market. And that means you need to be prepared as you set out on your home search. Here are three tips for buying the home of your dreams today.

1. Understand How Mortgage Rates Impact Your Homebuying Power

Mortgage rates have increased significantly this year, and over the past few weeks, they’ve been fluctuating quite a bit. It’s important to stay up to date on what’s happening with rates and understand how they can impact your purchasing power when you’re thinking of buying a home. The chart below can help.

Let’s say your budget allows for a monthly mortgage payment in the $2,100-$2,200 range. The green in the chart indicates a payment within or below that range, while the red is a payment that exceeds it.

3 Tips for Buying a Home Today | Keeping Current Matters

As the chart shows, even a small change in mortgage rates can have a big impact on your monthly payments. If rates rise, you could exceed your budget unless you pursue a lower home loan amount. If rates fall, your purchasing power may increase, which could give you additional options for your search.

2. Be Open to Exploring Different Options During Your Search

The supply of homes for sale is improving, which gives you more homes to choose from. But historically, supply is still low. That means as you search for homes, if you still don’t find something that meets your needs, it may be worth expanding your search.

recent article from the Washington Post highlights a few things buyers can consider today. It encourages opening yourself up to more areas. For example, if there’s a location you’ve previously ruled out (like a particular town, for example) it may be worth taking another look.

And if you’re able to, opening your search up to include other housing types, like newly built homes, condominiums, or townhomes can further increase your pool of options. Even as the inventory of homes for sale improves today, finding ways to cast a wider net during your search could help you find a hidden gem.

3. Work with a Local Real Estate Professional for Expert Guidance

Ultimately, you need to be prepared when you set out to buy a home. Jeff Ostrowski, Senior Mortgage Reporter for Bankrate, explains:

“Taking the leap to homeownership can provide a feeling of pride while boosting your long-term financial outlook, if you go in well-prepared and with your eyes open.”

No matter where you’re at in your homeownership journey, the best way to make sure you’re set up for success is to work with a real estate professional. If you’re just starting your search, a real estate professional can help you understand your local market and search for available homes. And when it’s time to make an offer, they’ll be an expert advisor and negotiator to help yours stand out above the rest.

Bottom Line

Strategically planning your home search by understanding today’s mortgage rates, casting a wide net, and building a team of experts can be the keys to finding the home of your dreams. To make sure you have expert advice each step of the way, partner with a local real estate advisor.

Why a Home Inspection Is Important [INFOGRAPHIC]

Why a Home Inspection Is Important [INFOGRAPHIC]

Some Highlights

  • If you’re buying a home, here’s what you should know about your home inspection and why it’s so important.
  • home inspection is a crucial step in the homebuying process. It assesses the condition of the home you plan to purchase so you can avoid costly surprises down the road.
  • Work with an agent so you have an expert on your side who can guide you through the process.
Is the Shifting Market a Challenge or an Opportunity for Homebuyers?

Is the Shifting Market a Challenge or an Opportunity for Homebuyers?

If you tried to buy a home during the pandemic, you know the limited supply of homes for sale was a considerable challenge. It created intense bidding wars which drove home prices up as buyers competed with one another to be the winning offer.

But what was once your greatest challenge may now be your greatest opportunity. Today, data shows buyer demand is moderating in the wake of higher mortgage rates. Here are a few reasons why this shift in the housing market is good news for your homebuying plans.

The Challenge

There were many reasons for the limited number of homes on the market during the pandemic, including a history of underbuilding new homes since the market crash in 2008. As the graph below shows, housing supply is well below what the market has seen for most of the past 10 years (see graph below):

Is the Shifting Market a Challenge or an Opportunity for Homebuyers? | Keeping Current Matters

The Opportunity

But that graph also shows a trend back up in the right direction this year. That’s because moderating demand is slowing the pace of home sales and that’s one of the reasons housing supply is finally able to grow. For you, that means you’ll have more options to choose from, so it shouldn’t be as difficult to find your next home as it has been recently.

And having more options may also lead to less intense bidding wars. Data from the Realtors Confidence Index from the National Association of Realtors (NAR) shows this trend has already begun. In their recent reports, bidding wars are easing month-over-month (see graph below):

Is the Shifting Market a Challenge or an Opportunity for Homebuyers? | Keeping Current Matters

If you’ve been outbid before or you’ve struggled to find a home that meets your needs, breathe a welcome sigh of relief. The big takeaway here is you have more options and less competition today.

Just remember, while easing, data shows multiple-offer scenarios are still happening – they’re just not as intense as they were over the past year. You should still lean on an agent to guide you through the process and help you make your strongest offer up front.

Bottom Line

If you’re still looking to make a move, it may be time to pick your home search back up today. Partner with a real estate professional to kick off the homebuying process.

A Real Estate Professional Helps You Separate Fact from Fiction

A Real Estate Professional Helps You Separate Fact from Fiction

If you’re following the news, chances are you’ve seen or heard some headlines about the housing market that don’t give the full picture. The real estate market is shifting, and when that happens, it can be hard to separate fact from fiction. That’s where a trusted real estate professional comes in. They can help debunk the headlines so you can really understand today’s market and what it means for you.

Here are three common housing market myths you might be hearing, along with the expert analysis that provides better context.

Myth 1: Home Prices Are Going To Fall

One piece of fiction many buyers may have seen or heard is that home prices are going to crash. That’s because headlines often use similar, but different, terms to describe what’s happening with prices. A few you might be seeing right now include:

  • Appreciation, or an increase in home prices.
  • Depreciation, or a decrease in home prices.
  • And deceleration, which is an increase in home prices, but at a slower pace.

The fact is, experts aren’t calling for a decrease in prices. Instead, they forecast appreciation will continue, just at a decelerated pace. That means home prices will continue rising and won’t fall. Selma Hepp, Deputy Chief Economist at CoreLogic, explains:

“. . . higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.”

Myth 2: The Housing Market Is in a Correction

Another common myth is that the housing market is in a correction. Again, that’s not the case. Here’s why. According to Forbes:

“A correction is a sustained decline in the value of a market index or the price of an individual asset. A correction is generally agreed to be a 10% to 20% drop in value from a recent peak.

As mentioned above, home prices are still appreciating, and experts project that will continue, just at a slower pace. That means the housing market isn’t in a correction because prices aren’t falling. It’s just moderating compared to the last two years, which were record-breaking in nearly every way.

Myth 3: The Housing Market Is Going To Crash

Some headlines are generating worry that the housing market is a bubble ready to burst. But experts say today is nothing like 2008. One of the reasons why is because lending standards are very different today. Logan Mohtashami, Lead Analyst for HousingWire, explains:

“As recession talk becomes more prevalent, some people are concerned that mortgage credit lending will get much tighter. This typically happens in a recession, however, the notion that credit lending in America will collapse as it did from 2005 to 2008 couldn’t be more incorrect, as we haven’t had a credit boom in the period between 2008-2022.”

During the last housing bubble, it was much easier to get a mortgage than it is today. Since then, lending standards have tightened significantly, and purchasers who acquired a mortgage over the last decade are much more qualified than they were in the years leading up to the crash.

Bottom Line

No matter what you’re hearing about the housing market, trust the experts and partner with a local real estate professional. When you do, you’ll have a knowledgeable authority on your side that knows the ins and outs of the market, including current trends, historical context, and so much more.