Will the housing market collapse? (May 2022)
The United States has experienced an unprecedented housing boom caused in large part by the Covid pandemic. Demand for housing in some markets has grown exponentially, especially as companies have relaxed or eliminated workplace rules for employees.
Clearly, many New Yorkers have decided that paying Manhattan (or even Queens or Long Island) prices doesn’t make sense when they can move to Florida. In fact, a number of Wall Street firms have taken up offices in South Florida cities, including Miami, Fort Lauderdale, and West Palm Beach.
This has led to a price explosion in these markets because someone selling a one bedroom apartment in Manhattan for $500,000 thinks they are getting a bargain when that same dollar amount is buying you a two, even three bedrooms in one of these Florida cities.
The influx of New Yorkers had a ripple effect pushing residents further north or even into central Florida. Both of these markets have seen increases, but not keeping pace with price growth in South Florida. While New York briefly saw prices stagnate, this reversed when pandemic-related restrictions eased, as although there were dire predictions about New York (and other major cities), they remain huge draws.
But, with mortgage rates at their highest in years (although still historically low), some are wondering if the housing market will crash.
Is there a real estate bubble?
Generally, real estate is local and not national. This was not the case in 2008 when the housing market crashed because the economy collapsed and many people were unable to pay mortgages they probably never should have received. in the first place.
This is simply not the case now. Property prices may stabilize in some markets as demand slackens or supply increases, but there doesn’t appear to be a national catalyst like the one we had in 2008 that would cause the breakout of a general housing bubble.
Prices, however, have been high and may fall in some markets.
“Prices are up sharply everywhere. Moody’s home price index shows a 32% increase in prices nationwide over the past two years. The National Association of Realtors reports a even greater increase of 39%”, NPR reported.
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Economists told the news agency that prices could fall in the most “excited” markets.
“I expect prices to come down,” Mark Zandi, chief economist at Moody’s Analytics, told NPR. “”If you told me two years from now that prices are 5, 10, 15% below where they are now, where they peak, I’d say that sounds about right to me. “
A dive is not a crash
The cooling of prices is not the same thing as the collapse of the real estate market. Housing prices have continued to rise, according to an article by Dan Weil of TheStreet.
“When it comes to home prices, the Case-Shiller home price index jumped 19.8% in the 12 months to February,” he wrote. “On the interest rate front, the 30-year fixed rate mortgage averaged 5.3% in the week ended May 12, the highest since July 2009, according to real estate agency Freddie Mac. This compares to 5.27% a week earlier and 2.94% a year earlier.”
And although the market may cool down, a new report from JP, Morgan suggests that hot markets will cool down, similar to how Moody’s Analytics described a possible correction.
In this research report, we highlight specific pockets of overheating in detailed US county data. For example, high prices, despite expanding supply, such as in Denver, Seattle, Washington, DC, Portland, Oregon and Boston indicate some risk of correction in JP Morgan’s models. Cities with sky-high prices, such as New York and the San Francisco Bay Area, suggest some possibility of correction even with limited supply. But there is currently no room with the same combination of rapid price growth, rapid debt growth and supply expansion seen in some regions in 2006.
This makes sense given where the prices are on a historical basis. “The National Nominal House Price Index is now 40% above its 2012 low and 4% above its 2006 peak,” according to JP, Morgan.
The end of new highs and the slowdown in some markets is not what happened in 2008. And, if the market cools down a little, it could attract more buyers who had chosen to stay away .