Despite what some may think, the market is expected to remain steady and not experience a downturn!
Here are several factors that contribute to this:
- Homeowners are recluctant to sell: As per the National Association of Realtors, the volume of U.S. Existing Home Sales in January 2023 has decreased by 34% in comparison to January 2022. Due to being bound to low-rate mortgages, a large number of homeowners are not eager to sell their properties as they would have to relinquish the favorable rate to buy a more costly home with a higher mortgage rate.
- Mortgage delinquency rates are low: Mortgage delinquencies, which indicates late payment by a homeowner on their mortgage, is relatively low. This can be attributed to the fact that lenders are not extending credit to borrowers who have poor credit scores.
- Home equity is at an all-time high: Compared to 2008, homeowners now possess a significant amount of home equity which puts them in a strong financial position and enables them to sell their property at a profit. The Home Equity Report by CoreLogic reveals that in the third quarter of 2022, individuals in the United States with outstanding mortgages saw their equity increase by 15.8%.
- The housing market is starved for inventory: One of the driving factors behind the appreciation in home prices in recent years has been the lack of inventory. The 2008 housing crisis caused the closure of many small home builders, leading to a decline in new builds. Although new builds have resumed, the global supply chain shortage has increased construction material costs and slowed down the process.
As the real estate market is currently experiencing a shortage of inventory, there is a substantial demand waiting to be fulfilled. It is improbable for a single factor such as interest rates to cause a slowdown in home price appreciation. A combination of inflation, affordability, interest rates, supply, and other factors will probably have to come together throughout the year to cause a decrease in home prices.
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