Are We In A Housing Market Slump Or Crash?

There are a number of reasons why you might wonder if we're in a housing market crash or slump. In the United States, we've had a housing bubble that affected over half of the states and was the impetus behind the subprime mortgage crisis. Prices peaked in the early part of 2006 and then began to fall until they hit new lows in 2011.

Home prices fell 0.7% from June to July

U.S. home values declined 0.1% from June to July, according to the latest Zillow report. Home values fell mainly due to higher mortgage rates and dwindling buyers' purchasing power. Despite the decline, home prices remain at high levels compared to a year ago.

Home prices are usually at their highest during the summer months. In fact, the average increase from May to June was 1.78% in the last decade. The last time home prices fell from June to July was in 2010. While June's price decline was only slightly larger than July's, home sales dropped on a monthly basis. In June, 20,289 homes were sold, down 25.3% from the same month last year.

The high cost of mortgages and high inflation are putting a strain on potential homebuyers. With fewer buyers, supply is rising. The median price of a home fell 0.7% from June to July, while the number of homes for sale hit a record high.

New construction home prices rose for the fourth consecutive month

New home sales in April fell to their lowest level in nearly two years. The decline was attributed to higher prices and rising mortgage rates. The annual rate of new homes sold in April was just 591,000, a 16.6% drop from March and a 26.9% decline from April 2020. Sales also fell below analysts' expectations. While the decline in new home sales was not unexpected, the downward revision to March's numbers also weighed on April's performance.

The median price of new construction homes in the U.S. rose to $450,600 in April from $376,600 a year ago. That means that the median monthly payment for a new home is now 57% higher than it was a year ago. Inflation has taken a toll on Americans' paychecks, reducing their purchasing power and driving some first-time buyers out of the housing market.

Mortgage rates will rise to 4% by end of 2022

The Mortgage Bankers Association predicts that 30-year fixed mortgage rates will rise to 4% by the end of 2022. However, there are a few caveats to this projection. First, mortgage rates do not directly follow inflation. In fact, the rates closely track the yield on ten-year Treasury bonds. Nevertheless, this hasn't dampened the mortgage market's expectations.

Another factor that is affecting mortgage rates is the Federal Reserve's plan to hike rates next year and taper its purchases of mortgage-backed securities. While this will increase mortgage rates, experts are divided on the impact it will have on the housing market.

Supply chain issues

New home construction isn't the only thing affected by supply chain issues in the housing market. Thousands of homes remain unfinished, due to back-orders of HVAC equipment, garage doors, and plumbing fixtures. These shortages are also impacting the sales of fixer-upper homes. In addition, buyers are having a difficult time finding qualified contractors and materials to complete their projects. As a result, repairs and replacements can take months. According to Ali Wolf, chief economist at building consultancy Zonda, 91% of homebuilding companies have reported supply chain problems.

Because of the shortages in materials and labor, home builders will have to increase their prices to get the products they need to build new homes. As a result, these shortages may push home sellers to defer listing their homes. This could further exacerbate the housing shortage. As a result, buyers will have to wait longer before purchasing a home.

Labor shortages

As the housing market continues to experience shortages of labor, governments promise to build more houses and retrofit existing stock. By 2025, Britain will need an extra 217,000 construction workers to meet demand for new homes. In addition, the country will need more workers to retrofit its 29 million existing houses. This trend could lead to construction delays.

Housing starts are still not fully recovered from the downturn, and they have only moderately increased in the past few years. Construction labor shortages are still a big problem for real estate developers and buyers alike. As a result, they are forced to raise prices and extend construction time. If this continues, a housing recession could loom sooner than expected.

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