Are We Headed for a Real Estate Crash?
With inflation still on the rise, the Fed has responded by continuing to increase interest rates - their target rate for the end of the year sits at about 3.4%. Because of this, 30-year mortgage rates are skyrocketing: as of June 2022, the average mortgage rate was about 5.5%, effectively doubling what they were at their lowest point during the pandemic. This is leaving investors to wonder whether we’re headed for another real estate bubble burst.
Housing Affordability at a Low Point
Housing affordability is at its worst level since the subprime mortgage crisis, so it may be easy to assume that we’re headed for a real estate crash. While we can’t know the long-term ramifications, the short-term situation offers some hope especially because we are in a different lending environment in 2022 than we were during the events that led up to the 2008 crisis.
Household Debt Ratios
Even though rates have gone up, household debt ratios remain relatively low. Households still have disposable income and are putting payments toward debt every month, which is a good sign. Across the board, bank deposits also show that there is a reserve of about $2T in excess savings, so consumers are in a considerably better position today than in 2008.
Housing inventories are still at a record low, but that will probably ease as the housing market cools.
Credit Ratings of Homebuyers
When the subprime mortgage crisis hit, the average borrower credit rating score was below 660. Conversely, today’s homebuyers have an average rating of 750 or higher.
Will housing market prices ease?
We anticipate that the housing market will continue to cool and prices will drop, but this is also dependent on location and local markets. Right now, however, we are not anticipating a dramatic housing market crash.
If you’re looking to purchase a home or real estate this year, contact us to help you review your financial plan and making sure that your real estate purchase aligns with your short- and long-term financial goals.
The Team at Chatterton & Associates
Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Royal Alliance Associates, Inc nor its representatives provide tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.