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Real Estate 2022: The Ultimate Guide to the Housing Market Crash

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The housing market has long been central to the macroeconomic health of the nation as a whole. Millions of prospective homebuyers are scratching their heads as home prices have risen more than 40% since the pandemic began. But as we head into 2023, homes are poised for massive change. Mortgage rates are rising, while demand for home sales, home construction and mortgages is declining. A record number of Americans are looking to sell their homes before the housing market cools down.

Looking to the Federal Reserve, recent comments According to Federal Reserve Chairman Jerome Powell, it is clear that the economy has not yet reached the end of central bank hawkish monetary policy. Further rate hikes and quantitative tightening are likely on the horizon, boding troublingly for housing, long considered the nation’s most rate-sensitive industry. While the likelihood of a housing slowdown remains strong, the likelihood of a broader and worse recession continues to grow stronger by the day.

Will there be a housing market crash? Will mortgage rates keep rising? Is there investment potential in a slowing real estate market? What will happen to home prices in a recession?

Depending on who you ask, you can get a wide variety of answers. Some argue that housing collapse is a fictional concept and virtually impossible. Some argue that it’s just a matter of time.

here investor placewe have gone to great lengths in an attempt to find the answer many Americans are craving. No matter when you want to avoid losing money, we have you covered.

The housing market crash has humble origins

Like bubble bursts of the past, rumors usually begin in the heat of unbridled growth. This time was no exception.

It’s hard to overstate how quickly house prices have risen since the pandemic began. soared It rose nearly 40% from $322,000 to $440,000. While it is common for real estate values ​​to increase over time, leaps of this magnitude are unusual.

As Covid-19 has sent millions of Americans home and interest rates have fallen to historically low levels, there has been a natural increase in demand for housing, where most people spend most of their time. , U.S. homebuilding and the general supply of housing plummeted. Basic economics shows that this was essentially a recipe for uncontrolled housing price increases.

Most troubling for economists is that home prices continued to rise throughout most of the summer, even as mortgage rates soared this year and demand for housing declined. This is, in some ways, what prompted not only comparisons to the 2008 crash, but also concerns about the housing recession.

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For page 3 of the Housing Crash Guide, read below.

Could a recession cause a housing downturn?

some economists yet It argues that house prices are unlikely to fall due to a tight housing supply, but that argument is not without rules. Even many discerning economists agree that if the country were to slip into a broader recession, housing demand could drop enough to prompt a house price response.

Unfortunately, the likelihood of a broader recession remains uncertain. According to historical technical indicators, a recession is defined as at least two consecutive quarters of negative GDP growth. Well, we are well past that point. already In the midst of a recession, it continues to be hotly debated. Consumer spending has not fallen sharply, typical of a sinking economy, the US continues to add new jobs, and gasoline prices have fallen significantly from their peaks.

But this is no excuse for the fact that the country’s economic tightening is far from over. The Federal Reserve is likely to continue raising rates and offloading Treasuries. Both lead to a further decline in aggregate demand.

The shape of the current US recession remains unclear. However, the impact on housing can be substantial.

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For page 4 of the Housing Crash Guide, read below.

Mortgage rates, interest rates and the housing market: what to expect

Mortgage interest rates are vital to the integrity of US home prices. The proof is right in the pudding. Interest in buying a home has all but disappeared as mortgage rates have more than doubled for him from pandemic levels. Mortgage applications remain at record lows. One of her five home sellers even lowered her asking prices in August due to a surprisingly cold market. Unfortunately it doesn’t look like much help is being done.

Mortgage rates may continue to rise as borrowing costs rise in the form of higher federal funds rates. Mortgage interest rates are not directly controlled by his Fed. Rather, it reacts to specific forces such as the 10-year Treasury yield. This means that even if interest rates rise, mortgage rates may remain stable. However, many economists expect higher lending rates to continue to put upward pressure on mortgages. And if the past year was any indicator, the increase could be substantial.

30-year fixed-rate mortgages have been the cornerstone of the US housing market since virtually time immemorial. The trajectory of mortgage rates going forward could have far-reaching implications for home prices.

If the housing crash becomes full-fledged, it will have a major impact on housing demand as lending rates fall.

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Read below for page 5 of the Housing Crash Guide.

Do experts think a crash is coming?

Top economists and analysts have long been at odds over the possibility of a broader housing market crash. Optimists argue that there simply aren’t enough sellable homes for prices to really plummet. A plunge alone is enough to trigger a chain of crashes in local markets.

What’s the real answer? probably in the middle.

The supply of homes for sale has increased this year. In fact, in the US he recorded 10.9 months of new housing supply in July. This is almost double the level he recorded in December and is getting closer and closer to his 12.2-month supply, the all-time high recorded during the 2008 housing crisis. This reflects a surge in housing supply that seemed impossible just a few months ago. While this blows some wind out of the optimist case, it doesn’t exactly mean a property crash is certain.

In fact, many economists and realtors argue that the worst-case scenario for housing is far from what many would consider a collapse.

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For page 6 of the Housing Crash Guide, read below.

How far will house prices fall?

Perhaps even more divisive than the notion of a slowdown in the housing market per se is how volatile the market will be. Depending on who you ask, home prices can be stagnant, slow growing, or plummeting.

In that sense, everyone is in the same boat, from realtors and economists to Wall Street analysts. Broader economic change will prove to be the single most influential determinant in the housing market. Only time will tell whether the soft landing of the economy that the US Federal Reserve (Fed) has touted will really come to fruition.

Understanding the different potential outcomes of a housing market in a growth trough can help you avoid investing in money sinks that could lose some of their value in the coming months or years. increase.

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Read below for page 7 of the Housing Crash Guide.

The housing market is undervalued and overvalued

While the 5% price drop estimate may seem relatively modest (definitely compared to the crash of 2008), it doesn’t mean the price drops will be the same across the country.

Since the pandemic began, some regional markets have seen prices rise even faster than others. That’s pretty hard to do when average home prices are up 40%.

The opposite is also true. Given the current state of property price appreciation, there are many undervalued neighborhoods where home prices are below what they should be. These places could be less volatile if housing collapse really took hold.

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Read below for page 8 of the Housing Crash Guide.

How to profit from a potential housing recession

While a housing market crash usually comes with a loss in property values, there are still ways to profit from the rebound in house prices.

In fact, like Michael Barry big short, Opportunities abound for those who expect housing to take a turn for the worst.

Betting on housing is now always a risky business. Because house prices basically always go up, given enough time. However, it is possible for him to triple his earnings for every 1% his house prices fall.

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As of the date of publication, Shrey Dua did not hold any positions (directly or indirectly) in the securities referenced in this article. The opinions expressed in this article are those of the subject author of InvestorPlace.com. Publication guidelines.

With degrees in economics and journalism, Shrey Dua leverages his extensive experience in media and reporting to provide well-informed research covering everything from financial regulation and the electric vehicle industry to housing markets and monetary policy. I am contributing an article. Her Shrey articles have been featured on Morning Brew, Real Clear Markets, Downline Podcast, and more.

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