This has been the fastest period of housing price growth in recorded history – even outpacing the housing bubble of 2008. The average price of a home in America has increased 16.2% to a mind boggling $374,000.
Some of the hottest markets in Texas and Florida compressed five years’ worth of home price growth into less than a year— a very scary precedent.
Even though Federal Reserve Chairman Jerome Powell ruled out higher rates on Wednesday, May 4, they have to go higher to tame inflation. The Fed will keep raising rates so mortgage rates will keep going up.
In February, a 30-year fixed rate was 4.53%. On Friday May 6, a 30-year fixed rate was 5.93%. This will throw water on the fire, so we won’t repeat the 2008 housing market crash.
The real estate market isn’t going to explode like it did in 2008, but it will shrink. Homes across the country have been insanely overpriced, and now it’s time to pay the piper.
It’s all about consumer confidence.
The stock market is dropping. The bull run is over. It’s been running on empty for months but there’s only so much wind in the sails. The S&P is suffering its longest losing streak in a decade, and the recent Dow losses are hitting harder than Will Smith’s slap heard around the world.
Inflation is soaring and it will keep rising. The inflation rate is now at a whopping 8.5%. A year ago it was 2.26%. the Housing Market crash was also a big loss.
Former Treasury Secretary Lawrence Summers said that the Federal Reserve had been late to spot the dangers of inflation and that delayed action to cool prices could potentially tip the economy into a slump.
David Rosenberg, renowned economist at Rosenberg Research, said that “the Fed will beat inflation so hard that the U.S. economy will slide into recession as early as this summer.”
Home buyers are not going to commit to a big mortgage payment if they think the economic future is uncertain. When the stock market retreats and the country slides into a recession, people are impacted psychologically.
It may be good for investors, but it will be terrible for the average Joe.
So, is the real estate market going to be a bust? With inflation soaring, rising interest rates, the falling stock market, it’s possible. But our belief is that the real estate bubble will not burst– it will level off to more sustainable median prices sometime this summer.
