The federal reserves continued rate hikes and the likely rise in unemployment is expected to drive the housing market into a recessive period.
In 2021, housing prices were at an all-time high due to high demand and bidding wars driving the prices to record levels. But now it is taking at least ten days longer to sell a property as interest in housing has plummeted by 35%. Overall, property prices have dropped by 7.5%.
The housing boom is seeing a colossal slowdown globally, with property prices dropping in a range of different countries. This slowdown is to the economic crisis that has been taking over people’s lives since the COVID-19 pandemic and rising interest rates.
To try and claw back inflation rates, banks have increased interest rates to levels not seen in over ten years. This increase has also affected the cost of borrowing. Mortgage rates in the US rose to 7% last month, which has more than doubled from this time last year. They decreased slightly this month as inflation has started to trail off. Mortgage rates have mirrored this pattern globally and have caused would-be buyers to be cautious and wait until the market is less volatile.
Another factor that could drive this housing recession is unemployment. An increase in people without any formal income will stop any housing market in its tracks. As the property sector is known for propping up other areas of a failing economy, it is not ideal.
While we are in the early period of a housing downturn, it still needs to be discovered how steep or the duration of this crisis will be. US economists are expecting property prices to decrease between 5-10% from their peak price this year. They could fall by 20%, but this is looking at the crisis in a very negative light. Housing sales decreased by 28% in the US compared to October 2021. This is the ninth consecutive monthly decline in sales.
As well as frightening away new buyers, the new mortgage interest has shocked homeowners who have been accustomed to lower interest rates. This rise could increase the number of forced sales due to people not being able to pay for their new larger mortgage. As every other household bill is also on the rise, it could be a massive issue in the future. If first-time buyers are unwilling to buy these forced sales, a crisis has formed for homeowners.
The housing market is not looking good for either buyers or homeowners over the next few years, as interest rates, unemployment, and the cost of living skyrocket. People will have to make tough decisions when it comes to the needs and wants in their lives. There will be lowered house prices and lowered first-time buyers but high amounts of unemployment and forced sales. Hopefully, this new housing recession will not affect house prices too much, and interest rates will drop. It would be nice if everyday life could resume for all sometime soon.