Could America be on the precipice of a 2008-style housing market crash? The alarm bells are getting louder due to a recent contraction in mortgage demand. The implications for home buyers and sellers, as well as stock investors, cannot be ignored.
In this month’s Federal Open Market Committee (FOMC) meeting, the Federal Reserve hinted at a “higher for longer” interest rate policy. Consequently, the 30-year fixed mortgage rate recently reached 7.75%.
Furthermore, the Federal National Mortgage Association — the mortgage loan originator commonly known as Fannie Mae — downgraded its forecast for U.S. mortgage originations from $1.60 trillion to $1.56 trillion in 2023 and from $1.92 trillion to $1.88 trillion in 2024. So, should homeowners and investors batten down the hatches and brace for a housing market collapse?
Low Mortgage Demand Spurs Housing Market Crash Fears
Unfortunately, the argument for an imminent housing market crash seems to only be getting stronger. Citing this higher-for-longer interest rate policy, economist Joel Kan observed that overall mortgage applications have declined recently “as both prospective homebuyers and homeowners continue to feel the impact of these elevated rates.”
Moreover, a CNBC report found that the 30-year fixed mortgage rate just reached its highest level since the year 2000. Naturally, this will have a negative impact on mortgage demand.
CNBC also reported that applications for a mortgage to purchase a home declined 2% last week compared to the previous week and were down 27% on a year-over-year basis. Thus, there’s no denying that elevated interest rates are putting serious pressure on America’s housing market.
Is It Time to Sell Your Home and Stocks?
Selling one’s home due to fears of a housing market crash probably isn’t the most sensible thing to do now. After all, selling a current home and buying a new one might involve changing from a lower mortgage interest rate to a much higher one.
Mortgage demand will go through up and down cycles, just like the stock market. If you’re really worried about it, you could lighten up on real estate stocks like Realty Income (NYSE:O) and Rocket Companies (NYSE:RKT). You could also take profits on real estate market adjacent stocks like Lowe’s (NYSE:LOW) and Home Depot (NYSE:HD).
Or, you could just relax and ride out the ups and downs. Better yet, you might even choose to buy real estate stocks if other traders are selling them. As the old saying goes, never let a crisis go to waste.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
