The red-hot housing market may finally be cooling off and bringing prices down as a result.
As interest rates escalate, home prices are on the decline, the first time since 2012. The pandemic housing boom attracted a lot of investors into the market, and now those investors may be slashing prices to create demand and sell inventory.
“Ultimately, house prices just can’t grow significantly more than the rate of income,” said Daniel McMillen, the head of the Stuart Handler Real Estate Department at the University of Illinois-Chicago. “This has to be when the market starts to decline, and it’s happened.”
While most housing experts don’t predict a correction on a scale with the Global Financial Crisis, when home prices fell 27% between 2006 and 2012, they do acknowledge that there will be a home price correction.
Home sales were down in Illinois by 19% in September compared to last year, while prices slightly increased.
Is the housing bubble about to pop? Sixteen of the 20 signs of a housing market bubble are “flashing red,” real estate consultant John Burns wrote in a blog post earlier this month. Those signs include decreasing affordability of homes, falling sales and waning demand.
There is a difference of opinion on the “bubble” theory, but one thing that most agree on is that the housing market is undergoing a correction that will likely continue into next year.
Many experts say housing markets in Texas, California, and the Southwest could see the biggest price corrections because they have been so expensive.
Average mortgage rates have doubled this year, passing 6% for a 30-year fixed-rate loan, according to a report by ATTOM. Meanwhile, the stock market has slumped and inflation is at a 40-year high. Foreclosure activity has also doubled over the past year, according to the report.
“It’s hard to see any pleasant outcome,” said finance professor Aaron Brown to Realtor.com. “But it’s not going to bring down the financial system.”
