Are Housing Prices About to Collapse? Probably Not, and Here's Why
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Loading... - Akuba Andoh
- 17 Aug 2022
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This morning’s housing stats were, at first glance, not very good. The headline housing starts number showed a decline of close to ten percent from last month’s number, versus a consensus expectation for a drop of closer to three percent. There was a little relief from the building permits number that was a little higher than expected, but even so, it appears that the house building boom is well and truly over. But does that mean that house prices are about to take a nosedive?
Not necessarily.
This morning’s numbers may have been officially worse than expected, but they weren’t really a surprise in the logical sense. The Fed announced two consecutive three-quarter point rate hikes and say there is more to come, and mortgage rates are significantly higher than the ultra-low levels that fueled the boom as a result. That makes every house more expensive for anyone who isn’t just ponying up cash, and that isn’t the only thing discouraging potential buyers.
There is also the fact that for the last six months, TV pundits have been talking about a coming recession. For most homebuyers and consumers, that word brings back memories of 2008, a time when unemployment spiked and housing prices collapsed, leaving a lot of people in a lot of trouble. They look at the big jump in housing prices over the last couple of years, hear heated discussions about whether we are headed for a recession or are already in one, and have a perfectly understandable reluctance to buy, fearing that they may be hitting the top of the market.
That logic is being used by pundits everywhere to explain a bad number and, by extension, to predict a collapse in house prices before too long. There is, however, one obvious problem with that view: Even as rates have risen and talk of recession has become commonplace, actual housing prices have, despite jumping so dramatically, not yet turned tail. The average rate of increase across the country has flattened out over the last couple of months, but prices remain elevated, as does demand for housing. Read More...
