“Should I wait to buy a house?” This is a common question being asked at cocktail parties across the country right now. After a dramatic run up in home prices over the past few years which saw record levels of home buyer demand, we have now seen a dramatic slowdown in buyer activity. In fact, it is estimated that approximately a quarter of active listings for sale have already experienced a price reduction. Although there are several reasons for the slowdown, the primary reason is the rapid increase in mortgage interest rates. Unfortunately, the rise in rates is also due to out of control inflation that is also impacting home buyer budgets.
Heading into the pandemic and the subsequent shutting down of the economy, many believed that the real estate market would suffer due to many homeowners not being able to earn an income and thus having to foreclose on their properties. However, mortgage forbearance programs allowed many homeowners to pause their payments until they could get back on their feet. Ultimately, this worked and as of March 2022 the mortgage delinquency rate (90-plus days past due) was at a record low of 0.5%. In addition, The Federal Reserve kept interest rates extremely low during this time. The result was actually a frenzy in the housing market which saw skyrocketing prices, bidding wars, and a lack of inventory. Although some think that we are in a housing bubble, there are reasons to believe that the current market is not a repeat of what was seen during the housing collapse in 2008.
The fundamentals of the current housing market
Most economists will be quick to point out that there are some stark differences between the current housing market and the one in 2008. In particular, below are a few of the key differences:
- Strict lending standards: Perhaps the biggest difference between the current housing market and the one in 2008 is the lending environment. It has been well-documented that loose lending standards resulting in risky loans resulted in many mortgage defaults as the economy deteriorated. The Dodd-Frank Act, which was signed into law in 2010 aimed to prevent that by increasing oversight in the mortgage lending industry. As a result, we now see legitimately qualified buyers in the current market. In fact, the median credit score of newly originated mortgages was 776 in the first quarter of the year, according to the Federal Reserve Bank of New York.
- Homeowner equity is high: Mortgage holders now have $2.8 trillion more in tappable equity compared to a year before, according to Black Knight, a mortgage technology and data provider. Furthermore, mortgage delinquencies for single-family homes hit a 30-year high of 11.36% in 2010. In comparison, this rate was just 2.13% as of the first quarter of 2022.
- Tight inventory: Another key difference between the current housing market and the one seen in 2008 is the supply of homes for sale. With inventory remaining low in the current market, this has kept home prices fairly stable. In 2008, we saw an oversupply of homes for sale as more homeowners foreclosed on their properties. In addition, inflationary pressures, supply-chain issues, and a labor shortage is continuing to contribute to the current lagging new home construction market.
“Should I wait to buy a house?” The answer to this question is never straightforward and unfortunately nobody has a crystal ball. With this said, it is not unrealistic to believe that there will be some slight price corrections in various markets across the country. In fact, we are already seeing price reductions on active listings in the largest metropolitan markets across the country. Depending on your scenario, it may make sense to wait to buy a home in your market, particularly if inventory is expected to improve. With this said, if you are expecting home prices to plummet in a similar fashion to what we saw during the housing collapse of 2008, this is highly unlikely according to most economists. On the bright side, buying a home in the current market should be less competitive than it was even just 6 months ago. In fact, it is estimated that approximately 18 million would-be home buyers are now opting to wait on the sidelines due to higher interest rates pricing them out of the market. To read more about this, read our previous article on this topic here.
It should be noted that many experts believe that we are already in a recession. With this said, the length and depth of the recession and impacts on potential job losses are yet to be determined. Sky-high inflation combined with a recession could certainly result in more distressed property sales, ultimately putting downward pressure on home prices. As with any market, the housing market is cyclical and it is important to continue studying the various dynamics to look for trends in your local market. Are you in South Florida? Contact Natasha at Live South Florida Realty, Inc. for all of your real estate needs!
At Live South Florida Realty, Inc. we have assisted many clients with their real estate needs. Are you looking to buy or sell a property in South Florida? Now more than ever, it is critical to have a qualified real estate team and the proper search tools behind you. Live South Florida Realty, Inc., has been a leader in the South Florida market for many years. Let our team of professionals assist you with buying or selling your piece of paradise today! In addition, our trusted “Florida Home Search” app is available on the Apple App Store and Google Play Store. With real-time MLS feeds, this app lets you set your own alerts to notify you as soon as a property meeting your needs hits the market. Furthermore, it will also let you know of recent closed sales in your area so that you may be even more educated on the market. Be sure to download this app for your smartphone or tablet today!