Will housing prices drop?
When you buy your first home, you need to have a plan. Buying at the right time based on the ups and downs of the market can sometimes feel like a game.
But in the last few months, this game has become much less fun for people who want to buy a home. They may feel like they’re being played with. The Federal Reserve Bank of Dallas recently said that the housing market could drop by 20% in the next year. This could put an end to any joy that was left in it.
Americans who want to get in on the action have to make a choice. Should we wait until the market is at its lowest point? Or are these just “predictions” that won’t come true, and it’s better to get in now before more possible rate hikes?
Both choices have advantages and disadvantages, but here’s what the experts say.
Housing prices could plunge further
Even though the Dallas Fed says housing prices could drop by 20%, experts say this is a bad case scenario. Enrique Martinez-Garcia, an economist at the Dallas Fed, says that the Federal Reserve should “carefully thread the needle” to bring inflation down without starting a downward spiral in house prices.
This would help Americans who want to buy a home but are afraid of another housing crash like the one during the Great Recession. After all, when the Fed meets again in December, the overnight lending rate could go as high as 4.5 percent. But it’s hoped that it will be less than past increases.
But it’s important to remember that a lot has changed since 2008 when bank lenders played a big role in the housing crash. The Dodd-Frank Act, which was passed in 2010, was meant to stop crashes like the one that happened in 2008 from happening again.
Still, rising interest rates could cause a drop in the housing market. This is because higher rates cause people to spend less and save money, which means more houses are on the market. Martinez-Garcia says housing prices go down when more houses are sold, creating a “negative feedback loop.”
But nothing is a sure thing. Again, since changes were made after the Great Recession, it’s possible that we will see a slight drop in home prices that economists are predicting. However, it’s unlikely that home prices will drop as much as they did in 2008.
So, is it better to get in now?
Taking COVID-19 into account may be the biggest reason to buy now. The pandemic could have killed homeowners if mortgage lenders hadn’t helped them. Also, Americans were able to lock in very low-interest rates.
Even though housing prices are decreasing, they increased significantly during the pandemic. They went up the most in years. Those prices are still high now. In September 2022, house prices in the U.S. went up 12.2% from the previous year. The average growth rate over the last 30 years, according to the CEIC, has been 5.3%, so that is a huge number.
In September 2021, housing prices hit an all-time high of 18.7%, which was nowhere near the record low of -11.9% in March 2009. So even if there is more of a housing correction, prices are not likely to drop by 30% to get back to where they were in 2009.
Also, there are still a lot of homes for sale. Even though this should cause housing prices to go down, economists think it will be more of a correction after years of growth due to the pandemic. Something should happen for things to return to how they were before the pandemic.
So, what does this mean? As with most financial matters, it all depends on your situation and future plans.
Yes, prices could go down even more. But if you want to buy a house instead of an investment and have the money to do so, make sure you plan to keep it for a long time. That will give you the best chance of getting most of your home’s value back if there is a big drop.
If you can’t afford a home and are worried that a possible recession could ruin your finances, now is not the time to buy one, whether home prices go up or down. Even if there are a lot of homes for sale, prices are going down, and you can find a reasonable interest rate. But, of course, that will only help if you have good credit and can pay your mortgage.
Read Also: Interest Rates: How does it affect mortgage?
Meeting experts is the best way to determine what makes sense to you. Talk with your financial advisor first. They’ll help you figure out what, if anything, you can afford and whether or not you should wait it out.
Then, once you have some numbers in mind, find a real estate agent who can help you understand how the market works right now.
Once you’ve figured out the numbers, you’ll feel better about playing this real estate game. And it might even be fun again. But, unfortunately, in the last few months, there has been little fun.