Why are housing prices falling?

The U.S. housing market may be cooling in some areas. Next year, home prices may fall, or at least keep up with home prices. Making the decision to buy or sell a home can be difficult. It can be helpful to know why home prices are falling.

Housing is going up year over year.

After the pandemic, a homebuyer frenzy erupted and the housing market exploded. According to Corelogic’s chief economist, U.S. home prices rose in double digits from June 2021 to June 2022.

Last year, the average pre-sale price of a single-family home was $440,300. The mortgage rate was about 3.2%. Additional pressure on the housing market came from low inventory. Some neighborhoods were experiencing housing shortages as contractors were evacuated during the epidemic. This drove home prices even higher, and home prices became the final price without much negotiation.

Nevertheless, the housing market could respond with an inflation rate of 8.5% as of June 2022.

Economic Atrophy.

Homebuyers are beginning to retreat. “The U.S. housing market is at the beginning of its largest atrophy since 2006,” Chief Economist Len Keifer Freddie Mac tweeted last June.

Mortgage applications fell to their lowest level in 22 years in June 2022, according to the Mortgage Bankers Association. Mortgage applications also fell in 2006, indicating a slowdown in the housing market.

But the difference between now and 2000 is in the type of loan. Fredymac made quite a few risky loans in the early 2000s. This, among other things, contributed to the housing crisis. As a result, the rules will be even stricter in 2022. Nevertheless, home sales shuddered. Unfortunately, homebuyers haven’t yet seen home prices fall. But as inventory increases, they may do so.

Additional inventory is available

Realtor.com says their forecast has changed from an expected 0.3 percent increase in inventory to a 15 percent increase in inventory.

That could mean a drop in single-family home prices next year.

New construction is contributing to this influx of inventory. Redfin, a real estate company, reported that more than a third of the homes to be sold in December were new construction. The abundance of new inventory could affect home prices.

High interest rates.

To curb inflation, the Federal Reserve raised interest rates from 3.11% in December to 5.47% in August 2022. Mortgage rates followed. Thus, the inventory is open, but perhaps fewer people are looking for it. High prices and high interest rates are enough to discourage some home buyers.

Vulnerable areas facing falling home prices

In most areas of the United States, home price growth is expected to slow to 5 percent, but there are also fast-growing areas that are vulnerable to falling prices.

The buoyant real estate market in Boise, Idaho, could slow down next year. In Inland California and Salt Lake City, Utah, single-family home prices could also be down. Another hot area poised for an economic downturn is New York City.

Buy or sell a single-family home

The question of buying or selling depends on your unique situation. But armed with knowledge. If you are a seller, the downturn in the housing market can affect the value of your home. You will need to decide whether to wait for the next improvement or sell before the housing market drops.

If you are a buyer, you should analyze how much you want to invest in housing costs over your net income. Should you wait for low home prices and take high interest rates? It depends on what your situation dictates.