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Is the Housing Market Slowing Down?

The novel COVID-19 pandemic has helped to create one of the most competitive housing records in US housing market history. This occurred at a time when many were expecting a slump in housing prices as the economy was centrally shut down, putting hundreds of thousands of Americans on unemployment. Let’s take a look at the current status of the housing market.

Is the Housing Market Slowing Down?

Bull Run

Surprisingly, prices soared between August 2020 and August 2021 by a record 19 percent. Previously, the biggest 12-month price increase was 14.1 percent. That jump was just prior to the 2008 sub-prime lending crisis. Shockingly, many buyers have forged ahead with their purchases despite discovering what bang they would actually get for their buck. In most cases, it wasn’t as much as they were expecting. One of the reasons for the bull run is the change to work from home. Many office workers chose to upgrade their living space to accommodate a home office setup.

Though still bullish, the market is now slowing down. Currently, the housing supply exceeds demand. Too many homes for sale with too few buyers means that prices must come down. The industry is awaiting data for September and October from the highly respected S&P CoreLogic Case-Shiller Home Price Indices. Experts expect the data to show price growth deceleration. Coming down from a record high of 19 percent still makes it a hot housing market. What remains uncertain though, is the level at which prices will flatten out. Furthermore, for how much longer will buyers be enticed to buy with low-interest rates on mortgages. One certainty is that with inflation starting to spike, those rates must go up soon.

Looking Bearish

The slowing down of the growth in market values has been attributed to normalization. This normalization trend is set to carry on into 2022. Projections are still predicting growth between 7 percent to a little over 13 percent year on year. Those predictions come from the mortgage lenders. However, CoreLogic is more bearish, with growth predictions for the next year being 1.9 percent to 2.2 percent. Rising inflation was taken into account in making such low predictions.

With inflation looking set to continue on an upwards trajectory, it is only a matter of time before interest rates climb as well. The current rate of 3.9 percent for the average 30-year fixed mortgage will climb above 4 percent in the coming twelve months. This movement doesn’t sound like much, however, it will bring downward pressure on house prices as potential buyers and the lenders re-crunch their numbers. Although future buyers will experience less sticker shock, they will take a more conservative approach to buying a home. While COVID-19 is still having an impact, experts believe 2022 will see the end of COVID mortgage forbearance protections.

Economic Outlook

High demand and supply constraints will play critical roles in the future of the housing market. In addition, experts also anticipate that seasonality will return. The only certainty is that housing prices are based on willing sellers and willing buyers. The rest is speculation.

Additional Reading: Omaha Housing Market Data

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