Home News ‘Housing correction’ is coming. What homeowners, buyers and sellers should know.

‘Housing correction’ is coming. What homeowners, buyers and sellers should know.

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Housing demand has been burning furiously for almost two years in a row as we emerge from pandemic shutdowns, but the housing adjustment is finally around the corner.

Two-thirds of the largest US housing market is overvalued, according to a report from Moody Analytics, an economic research firm on risk, performance and financial modeling.

The report found that 210 metropolitan areas are overvalued by more than 25%. Within that stat are 10 Michigan markets.

The report determined the overestimation by comparing housing prices with per capita wages and salaries based on the 2020 Census. Home prices that exceed base prices by more than 20% are considered highly overvalued.

That said, Chris Delitis, deputy chief economist at Moody’s Analytics, hesitates to call it a housing bubble. Instead, he prefers “housing fixes.”

“A bubble to me means a big explosion,” he said. “We’re assuming it’s overvalued. House prices will slow down, but income will slowly increase over time to catch up with house prices. And that’s what all of this is about.” That’s the way to solve it.”

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Assuming the economy continues to slow but isn’t in recession, deRitis expects homeowners, buyers and sellers to:

home owner

When news broke that homebuyers were offering cash rather than asking prices, there was a pit in the stomach of those who went through the housing crisis just a decade ago.

Mortgages were moving fast as they responded to historically low interest rates, with pandemic demand below 3%.

many people were afraid millennial buyers, Home buyers, who make up 43% of all home buyers, end up “home poor” after a bidding war with 10 potential buyers.

But deRitis believes that’s not the case in most cases. A key factor that separates the current market from his 2008 bubble, deRitis said, is the lessons he learned from subprime loans.

Buying in 2020 was still a good deal for homebuyers looking for a starter home they plan to stay in for a few years. soaring rent It happened as a ripple effect.

“You don’t have to worry about year-to-year fluctuations,” he said. “Even if prices in his neighborhood were down 5%, the long-term trend is still very good, so I wouldn’t worry too much.”

Those who have purchased in the last six months may be more at risk given that they purchased during the current peak of home prices.

Household flippers may be more vulnerable in this market for the same reason, deRitis said.

Still, if homebuyers didn’t overspend their budgets in the first place, deRitis says it’s fine.

buyer

Current buyers may feel stuck between a rock and a hard place when it comes to entering the market now or waiting for a fix.

Market timing is always a risk, but buyers can now afford to wait and shop.

Rising home prices and higher mortgage rates are slowing the pace of homes hitting the market and opening up supply.

This slowdown is healthy, according to deRitis, as it suppresses some behaviors that were occurring, such as abandoning evaluations and inspections.

“You don’t have to be so impulsive,” says deRitis. “You’ll have more leverage when it comes to negotiations. We’re not competing with as many buyers and potential buyers as we have in the past, so we can put those clauses in.”

seller

National home sales data for July showed a downward trend across the board. New home sales fell 30% year-on-year, according to the realtor.com.

This follows a six-month decline in existing home sales and a five-month decline in housing starts.

Nationwide, 1.26 million housing units were available as of early July. That’s three months’ worth of his supply, according to the National Association of Realtors.

Historically, 5-6 months of supply is considered ‘balanced’ in the real estate sector. Supply over six months indicates a buyer’s market, and less than that indicates a seller’s market.

Economists are calling the current period a housing recession, especially because of the slowdown in new home sales. The latest builder sentiment solidified that fear in August.

The National Association of Home Builders/Wells Fargo Home Market Index fell 6 points to 49 in August. Anything below 50 is considered negative.

Sellers need to be careful and adjust their expectations, deRitis said.

“I think it’s clear that sellers have to have realistic expectations,” he said. “This idea of ​​listing your home on Thursday, selling by Sunday in five different competing offers with escalation clauses, and doing a pick-up bid. I think we need a reset.”

More about MLive:

Mortgage rates slow home sales, but high prices persist

‘It’s a nightmare’: Stories from Michigan’s raging rental market

Top 10 cities where it’s cheaper to buy than rent.

Millennials are looking for their dream home, but Michigan’s competitive housing market puts it out of reach

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