Is Real Estate on the Verge of Crashing?
Key Takeaways
- House prices are decreasing while interest rates rise, impacting mortgages
- Metro areas are seeing the biggest drops in value — San Francisco lost 6.7% YoY
- The housing market could be key in the battle against recession
If analysts aren’t talking about recession, they’re discussing the prospect of a real estate housing market crash. With interest rates increasing, affordability decreasing, and housing stock growing, how is the market changing? Is a crash imminent? Let’s take a look.
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What’s going on with the US housing market?
Inflation and recession are the words on everyone’s lips at the moment, and many expect an impact on the real estate market. Plus, 2008 looms in many people’s minds as housing caused the biggest financial crisis in most people’s memory. Around ten million Americans lost their homes to foreclosure.
The housing market has come a long way since 2008. The median house sale price has doubled since then, with Q1 2023 boasting a solid price of $436,800. There’s been a minor correction since Q4 2022’s $479,500, which is less than 1%.
It appears that house values in metro areas are the worst hit. San Francisco saw the biggest year-on-year drop of 6.7%, knocking the area’s total stock value down to $517.5 billion in December 2022.
Of course, this isn’t great news for those looking to sell, but it could help younger generations get into desirable markets. It’s worth noting that the median sale price in the area is still $1.3 million, so they would have to be millionaire-nnials.
Generally, experts agree the housing market is cooling, but it’s certainly not crashing. There’s too little housing stock for a 2008 crash to occur again.
The housing market in the battle against recession
2008 served up a lot of lessons, and a huge one was ensuring mortgage affordability. Subprime mortgages are now heavily regulated, and homeowners must meet stringent earning criteria to buy their dream homes. That’s hugely decreased the risk of people losing their homes and the housing market causing another crisis.
It’s not all roses for homeowners, though. The Fed raised interest rates for 15 months in a row to try to curb inflation, driving mortgage rates up — some are pushing 7% interest. Thankfully, a Redfin study found that most homeowners’ (82.4%) mortgages are locked in at <5%.
Still, many people are priced out of the market, and many homeowners worry about affordability. And some of those who can afford a home are putting off purchasing in fear of a recession.
The bottom line
If a recession does occur, interest rates will likely drop again, allowing more people into the real estate market. That boosts the economy and increases home sales. We’re not saying, “Woohoo, bring it on!” to a recession, but it’s certainly not the end of the world for the real estate market if it happens.
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