Opinion: The housing market is finally about to calm down

Don’t worry. No crash coming. In fact, prices may not go down. Instead, this will be a much-needed rebalancing of the unhealthy market conditions we’re seeing today. This is particularly good news for first-time buyers.

Understandably, homeowners, in particular, may be concerned about a potential housing market crash — 2008 is our latest example of what can happen after a massive increase in home values. And we’ve never seen a hotter market than this one. The typical American home is worth nearly 21% more than it was just a year ago, a record that has been reset every month of the past 12 months. Homes were sold in days, not weeks. Inventory is 52% less than it would be in a normal spring.
But the underlying factors driving the housing market are very different from what they were in 2007. Homeowners generally have a strong financial footing and have a large equity stake. Buyers are buying homes they can afford, without resorting to risky exotic financial products as they did before the recent housing collapse. Competition and aggregate demand remain incredibly resilient, and will continue to be, thanks to the massive share of millennials that have reached peak home buying age, and a decade of construction that has left us over a million homes far from meeting demand. There are millions of awkward first-time buyers waiting in the wings for a chance to buy a home when and if competition finally begins to wane.

Under these circumstances, the slowdown in price growth should be embraced, and not feared. After all, as a result of these market dynamics, we’ve seen price growth that’s neither good nor sustainable and is putting more people at the expense of home ownership.

First-time buyers, in particular, are losing ground quickly — trying to collect a down payment large enough to compete with homeowners who are flocking to equity, and as rental prices explode, causing bigger holes in their paychecks each month.
Mortgage rates, which have hovered at record lows in the past two years, recently topped 5%, sending the monthly payment for a typical home nearly 20% higher in the past three months, 38% more than it was a year ago.
While this may seem like adding insult to injury for home shoppers who are expanding their budgets and still losing, there are early signs that higher prices are helping to slow the market. The stock is up for the first time since August last year, and if this trend continues, we could see a year on year rally by September. Furthermore, annual home value growth should peak this spring, and could approach 10% of 20% by next spring. This will provide buyers – especially first-time buyers – some relief, even though double-digit home value growth is still incredibly high by historical standards.
It will take the market years to rebalance from the pandemic trends. A panel of housing experts recently predicted another year or two before the stockpile would return to pre-pandemic levels…when it was still considered very low.

When that happens, and we see price growth begin to slow down at some point this year, it’s important to recognize what it is: not a crash, but a move toward health, and a small step in alleviating the affordability crisis.

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