By Taylor J. Kovar, CEO/Founder
Kovar Wealth Management
–Hi Taylor: I’ve been holding off on buying a house because the prices have been so steep, but I’m reading stuff about a market correction. Any idea if my time has come? – Erica
–Hey Erica: I think you might become a homebuyer in the near future! Can’t say exactly when or what you’ll pay, but we’ve got some clear signs that things are slowing down.
The effect of interest rates. By design, the fed raised interest rates in hopes of stopping inflation. The housing market has been a key factor in our red-hot economy, and when mortgage rates are higher, people are less eager to buy. It’s a double-edged sword—you have to pay more in interest but you hopefully won’t have to pay $100,000 above asking for the house you want. The rate hikes may cool the market but we’re still waiting to see those effects. However, some analysts think we’ve entered a full-blown correction.
Economic factors. The price of houses has been going up steadily for nearly a decade, minus the tiniest blip at the beginning of the pandemic. Prices had to slow down at some point, and everything about the global economy is factoring into the current downturn. In addition to everyday people paying more at the pump and in grocery stores, contractors and developers are paying top dollar for timber and other building materials. I’ve talked to guys at construction companies who are ordering windows, siding, and roofing the day a project breaks ground, knowing it might take six months for the supplies to arrive. Squeezing the economy never feels good and certainly doesn’t look good on paper, but there will be a silver lining to slowed construction as our supply chains regroup.
Value. About 15 years ago, the housing market collapsed because a lot of people bought more house than they could afford. We’re not heading into that kind of crisis this go around. Instead, it looks like the housing shortage led to a lot of properties being overvalued at the point of sale. If you bought your forever home and spent too much, you might feel annoyed. If you bought a million-dollar property in April that you’re hoping to flip, trends don’t look to be your favor. The big question will be how housing prices keep pace—or don’t—with inflation.
We’ve entered a new phase of the American housing market. We don’t know how long it will last or what the next phase will be, but you can bet that things are currently shifting away from sellers and toward buyers. Hope it all works out for you!
