There is no bigger financial decision in a person’s life than a house purchase. Buying a property and committing to paying a mortgage for 20 or 30 years is a daunting task. Even more so when there is uncertainty in the housing market as there is today.
During the course of the pandemic, house prices grew at record amounts. Fueled by people looking for more space during the lockdowns, High demand and low supply accelerated price growth during the COVID-19 pandemic. In fact, single-family house prices in the US increased by 18.7% from the first quarter of 2021 to the first quarter of 2022—the highest growth seen in over 31 years. The median home sales price in the US was $346900 in 2021, up 16.9% from 2020, and the highest on record going back to 1999.
However, with the lockdowns now a memory, the housing market is a different scene altogether. Existing home sales in the US declined for a seventh consecutive month in August as affordability deteriorated further amid soaring mortgage rates and stubbornly high house prices. Meanwhile, the National Association of Realtors reported on Wednesday that confidence among single-family homebuilders declined for a ninth straight month in September. It was also reported that permits for future homebuilding plunged to the lowest level last month since June 2020.
So, what are we seeing now? a housing market slowdown or a housing market crash? Without a doubt, the housing market is slowing down. Fewer properties are being sold and fewer mortgages are being applied for and granted. The question is will this slowdown turn into a crash?
Housing Market Crash 2023?
The biggest clue that there will be no housing market crash is the housing supply. Or to be precise, the lack of it. Housing market crash 2023 may be a catchy and fear-installing headline, but the likelihood is that there will be no housing market crash in 2023.
Housing supply in the US and elsewhere remains a huge issue. Many building projects were postponed or cancelled during the pandemic, something which exacerbated an already growing problem. The US housing shortage has more than doubled in the last 10 years and over 50% of all metro areas in the world’s largest economy now have a housing shortage.
The US currently has a housing inventory of 1.28 million which is unchanged from the same time last year. The underbuilding of the last few years, coupled with an increase in immigration has caused tremendous strain on the housing market. Immigration officials encountered more than 1.7 million migrants along the U.S. border in 2021, three times the number they reported in 2020. Government agencies have reported encountering more than 1.2 million migrants along the border in 2022.
Even with interest rates at their highest since 2008, the housing market is still buoyant enough to suggest that what we are seeing is a housing market slowdown and not a housing market crash. The record low mortgage rates of 2020/2021 helped spur a home-buying boom. Now, with interest rates rising, it is only expected that the extra cost will either deter people or make it too difficult to undertake a mortgage.
However. the decline is still only minimal. In fact, the declines are declining! Although existing home sales in the US are on a seven-month losing streak, the rate of decline is actually softening. July saw a 5.9% monthly decline from June’s data. However, August saw just a monthly decline of 0.4%.
The bottom line is that demand, although declining, is still relatively strong due to the lack of housing. The pandemic put slowed house building down massively, and it will take a few years at least, to catch up on the projects that were cancelled or postponed.
Also, already there is talk from the Fed and the EU’s ECB about lowering interest rates next year as combatting inflation becomes the focal point for central banks all around the world.
In short, what we are seeing is a market slowdown and a slight readjustment to the changing times of the last few years. Our work/home lives have been impacted by more and more companies going ‘remote-first’. This will naturally impact the housing market and that is what we are seeing, a housing market slowdown as the world around us changes.
The lack of supply will ensure there is no crash for a good few years yet (if at all).
