Recession and housing will the real estate market crash?
According to the Chief Economist of Rosenberg Research David Rosenberg, the US Central Bank has been one of the culprits in the recent skyrocketing of the United States inflation rate which could send us into send us into another real estate market crash. Rosenberg added that it is too late to combat the rapid increase of prices and another recession will inevitably occur.
In his own words, Rosenberg stated that the Federal Reserve is a bartender that handed out free drinks (referring to the monetary policies in 2020 and 2021) instead of taking the punch bowl away before 4 am when everybody is already ‘pissed drunk.’
Last September, the Feds raised interest rates by 3-3.25% to bring the current inflation from 8% to their target of 2%. According to the Central Bank, having higher interest rates is the Fed’s best way of countering rising inflation rates even though it would take a year to make inflation rates lower.
“They are telling you in their forecasts that they are willing to push the economy into recession to slay the inflation dragon. So a recession is a sure thing,” Rosenberg added.
The alarming rise in mortgage rates
Higher mortgage rate | Photo from Freepik
This year, mortgage rates have been the highest in 20 years. As of this article’s writing, the average rate for a fixed-rate loan is now almost 7%, which is double the rate from 2021 at 3.05%. As per experts’ predictions, mortgage levels next year will reach double digits for the first time since 1981.
Now that the Feds have increased interest rates, this prediction is highly possible.
National Association of Home Builders: Collapse is unsustainable
In other news, the National Association of Home Builders (NAHB) warned that the rise in home sales last September is temporary and real estate prices may fall sooner. The association added that the plunge in home builder confidence for the 10th consecutive month may cause weaker housing demands in the future.
According to the NAHB, builder confidence has been at its lowest since 2012 with a decrease of eight points this year. They noted that rising interest rates and home prices continue to weaken the housing market. Because of these factors, there has also been a decrease in prospective buyers, which causes builder confidence to weaken as well.
What happens during a housing market crash
Housing market crash | Photo from Unsplash
Because of the skyrocketing interest rates and mortgage prices, fewer people can purchase real estate properties. With Rosenberg’s prediction and the NAHB’s confidence level going down, no one could blame if people are asking if there will be another housing market crash. But, what exactly happens when the real estate market crashes?
When a housing market crash happens, the price of real estate properties starts to decrease rapidly. The main reason why houses tend to go cheaper during a real estate market crash is that there is a surplus of homes, while there are not enough buyers in the market.
A housing market crash doesn’t just affect the real estate industry, but the economy as well. It was told earlier that there is currently a decline in builder confidence this year. During a housing market crash, there will be fewer construction projects and activities. Banks would also be more hesitant in lending money for big-ticket items.
Once these situations happen, there will be lesser consumer spending which might result in a potential decrease in employment rates. Foreclosures are also more likely to happen during a real estate market crash. In a way, a real estate market crash may cause a ripple effect in the US economy.
Will the housing market crash?
Housing market crash | Photo from Freepik
According to several housing experts, the rise of mortgages in today’s housing market may be ‘abnormal,’ but would not cause a housing market crash as bad as 2007-2009. One of the reasons why these experts don’t see a housing market crash is because of the Millennial and Gen Z generations.
These younger generations make up half of the US population and most of them will be first-time homebuyers which means that the buyer pool is deep. Since there was a decrease in home prices, the experts believe that the housing market will stay afloat.
Another reason why experts say that there won’t be another market crash is because of tighter standards and regulations when it comes to lending. Banks and lending companies have learned their lesson from the 2008 financial crisis and ensure that homeowners are less likely to default on their mortgages compared to the pre-crisis lending period.
Moreover, after the last crash in 2007-2009, homebuilders are not as fast in building homes to cause a housing market crash. After the last market crash, regulatory approvals and land purchases are not as fast as before. And according to the National Association of Realtors (NAR), there was a 3.2-month supply of homes for sale in August. The oversupply of homes cannot just happen overnight.
The people of real estate during a recession
Lawrence Yun | Photo from NAR
Lawrence Yun, NAR Chief Economist said last August that the country is under a recession in terms of homebuilding and home sales, but not home prices.
During this recession, Yun said that homeowners have nothing to worry about. According to the NAR, existing home sales decreased by 20.2% in July from 6 million to 4.8 million houses. However, the median price increased by 10.8% from July 2021 to $403,800 last month. Yun added that homeowners are doing good in terms of housing wealth.
On the other hand, buyers are in a good position as well when it comes to this recession. Unlike last year, the slowdown in home sales can mean less competition. Sellers nowadays are more likely to decrease housing prices and accept terms that come with contingencies. This recession can make the market more balanced for homebuyers.
And for sellers, Yun told CNBC that they need to be more realistic. With today’s recession, property sellers cannot just post their home for sale at a high price and expect to have a buyer that easily. Sellers should do their best to do everything they can to sell a house fast in a slow market.
The days of many buyers and fewer houses are over. Due to increased prices, there are lesser buyer markers in the market. It’s not because they don’t want to buy a house, it’s because they can’t.
Home prices next year
According to Pantheon Macroeconomics Chief Economist Ian Shepherdson, there might be a decrease in home prices next year. Shepherdson stated in a CBS News report that high mortgage rates and lowering home demand has a heavy toll on home prices. Next year, home prices can fall by 20%.
How to sell your home during an economic recession
Economic recession | Photo from Freepik
Home sellers should realize that time is not on their side during a housing recession. While most experts say that a housing market crash is less likely to happen, real estate prices may drop lower next year. The best option for this situation is to sell your house fast for the best price possible.
A great way of finding a buyer is by increasing the appeal of your home. Yes, repairs are needed if you want your home to be more eye-catching for potential buyers. To be “eye-catching” the best renovations you can have for a home are the ones that improve its appearance. Repainting, light remodeling, and repairs that make your home look more expensive.
You should also remember that selling a home during a recession will involve more negotiations. Buyers have a list of potential homes to choose from and the best way to stand out is to have a reasonable price for a home that looks way out of the said price range. Aside from aesthetic repairs, regular cleaning and maintenance of your home go a long way.
For sure, homebuyers will encounter homes that need cleaning. They might not consider buying a home that is dirty and if they would, they usually lowball the seller. Remember that clean, nice houses are still sold even during recessions. It’s natural for humans to be biased toward visual appearance more than technicalities. It is your job to use this to your advantage.
Key takeaways
Recession | Photo from Freepik
The Feds are increasing their interest rates this year and because of this, mortgage rates might increase as well. Economists are predicting that there will be a recession but a housing market crash is less likely to happen. Real estate prices may drop by 20% next year and today is the best time for sellers to sell their homes.
To sum things up, High unemployment could affect the amount of buyers in the market, and also could create a lot more sellers looking to sell quickly, and the banks have stricter guidelines on Monday so we will hopefully not see the crash that we saw in 2008.
Sell your home fast during a recession
If you need a quick way to sell your property, Buys Houses will purchase your home if you live in the Pittsburgh area. Unlike listing with a real estate agent, you don’t have to pay commissions once your home is bought. The prices of homes are dropping, and the last thing you need is someone getting a cut from your sale.
Buys Houses can also sell your homes as fast as 30 days compared to real estate agents that have an average closing time. And when it comes to repairs, you don’t have to pay a single dime when you sell your house to us. We buy houses as is and the only thing you need to worry about is how to contact us! Sell your house Top Real Estate Buyers in the Pittsburgh area and have a fair deal amid today’s recession!