Home News Is the US headed toward a housing crash? Experts say it’s not 2008.

Is the US headed toward a housing crash? Experts say it’s not 2008.

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There are fears that the housing market could crash as mortgage rates skyrocket, home sales plummet and record prices fall.

Mortgage interest rates topped 7% this week. This is the first time in about 20 years. U.S. home prices saw a record slowdown in August, falling 2.6%, while new home sales fell 11% in September, according to data released Wednesday by the Census Bureau.

But experts say these market trends are signs of a correction after two years of strong growth, and some key elements seen during the 2008 housing crash are missing in the current economic climate. claims.

The start of the pandemic marked efforts by the Federal Reserve and Congress to stimulate the economy. The central bank cut interest rates to near-zero levels, and lawmakers passed a COVID-19 relief package to help individual Americans survive, and a package of measures for small businesses to keep employees on the payroll. .

Amid the economic turmoil, the housing market has boomed with very low mortgage rates, fierce competition fueled by declining inventories and remote work options, and soaring home prices.

However, the Federal Reserve (Fed) has implemented a series of rate hikes since March in a bid to contain extremely high inflation, which has hovered around 8% for several months.

Mortgage rates soared as a result of central bank efforts, 7 percent topping First time since 2002 this week. Mortgage rates could rise further as the Federal Reserve continues to fight inflation and raise interest rates.

This makes it more difficult for buyers to make monthly payments, even though the list price remains high.of median selling price The number of new homes sold last month was $470,600, with an average selling price of $517,700.

Rising mortgage rates have led to a general decline in demand, fueled by a sharp drop in new home sales, resulting in record price declines.

Moreover, the number of contracted homes fell for the fourth straight month, indicating a significant contraction.

“Until this month, the housing market recession has been described as a return to pre-pandemic conditions before sub-3% mortgage rates ignited a home-buying frenzy in 2020 and 2021. We were able to do that,” Redfin deputy chief economist Taylor Marr wrote in an analysis Thursday.

“But now both mortgage applications and pending sales are below 2018 levels. A four-year setback is a significant correction. It could drop further, but ultimately it should bring price relief to those who need to move this winter,” Maher added.

But even in the slowdown, the housing market and the economy as a whole look strikingly different than they did in the 2008 financial crisis, when the housing bubble burst, experts say.

“There was too much housing inventory at the time. There was too much housing being built, too many homes being built relative to household composition,” Robert Dietz, chief economist at the National Association of Home Builders, told The Hill. .

“You had a lot of high-risk mortgage underwritings, which led to a situation where housing prices were falling, which was eventually combined with rising unemployment. [there were] With so many mortgages and rising foreclosure rates, it took time for the housing glut to clear,” said Dietz.

A housing oversupply was followed by nearly a decade of building shortages, leaving at least one million homes short today. This was exacerbated by millennials coming of age near the end of this low-productivity period.

Yelena Maleev, an economist at KPMG Economics, told The Hill that the continued need of millennials could be the floor on the price.

“Millennials will continue to age toward the peak of homebuying. Household formation has outpaced new construction for many years,” says Maleev.

“And this short supply will provide a floor on how low it can go, even with mortgage rates at 7%, because people may still need to move. There are triggers in life that make people have to buy a house even if they don’t want to,” Maleev added.

And today’s lending standards are vastly different than they were before the financial crisis. Home Loans Inc. Mortgages His broker and owner, Jason Sharon, said the practice so far has made it easier for buyers to qualify for loans without ancillary income, he said. explained to The Hill.

But now the standards have changed. In particular, former Congressmen and bill supporters Senator Christopher J. Dodd (D-Connecticut) and Rep. Bernie Frank (D-Mass.).

“Therefore, credit limits have been tightened, income and asset verification and employment established. You cannot get a suitable loan without meeting very strict document requirements,” says Sharon.

Other economic factors, such as unemployment, are very different from the financial crisis of the early 2000s. In December 2008, he was 5%, but by mid-2009 he had surged to 9.5%, according to Labor Department data.

Things look better today as the unemployment rate dropped to 3.5% last month.

In addition, the US also saw growth in the third quarter of this year. According to data released by the Department of Commerce, gross domestic product (GDP) is growing at an annual rate of 2.6%. However, these numbers still do not assuage fears of a looming recession.

Nevertheless, the latest GDP report and employment rate show that the U.S. has so far We avoided a recession.

Still, the data contained tough news for the housing sector as spending on home construction fell 26.4% in the third quarter. That’s about 10% higher than his 17.8% decline in the second quarter.

Economists expect a further decline in the housing market, but Dietz said the numbers should be put into context.

“Some of the expected rebalancing will be painful, but if you’re talking about a market where prices have gone up 40% or 50% in the last two years, 15% are still significantly higher than they were two years ago. We are off the market,” Dietz said.

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