With the Federal Reserve hinting at a “higher for longer” interest rate policy, some investors are concerned about the prospect of a housing market crash. Their worries may be justified, too, as housing becomes less and less affordable for hardworking American families.
The signs all seem to point to a breaking point in the housing market. Believe it or not, the median sale price of an existing home in the U.S. reached $406,700 in July. Moreover, several real estate associations wrote a letter to Fed Chair Jerome Powell this month, practically begging him to stop raising interest rates.
I hate to be the bearer of bad news, but there’s still more data indicating the possibility of a housing market crash. Knowing this, investors will definitely want to take action sooner rather than later.
Could Lack of Affordability Cause a Housing Market Crash?
What could lead to a housing market crash in 2024? One potential culprit is high mortgage interest rates. Reportedly, the 30-year fixed mortgage rate surged to 7.81% on Oct. 6 before pulling back slightly to a still-high 7.6% on Oct. 11.
Those figures are undoubtedly jaw-dropping for anyone considering buying a new home now. Yet, current homeowners who may consider selling their homes are now reluctant to do so. After all, they’re probably paying 3% to 4% rates on their mortgage agreements from years ago.
Selling a home with a low mortgage rate — only to move into a new home with a nearly 8% mortgage rate — wouldn’t make sense. Consequently, it’s an ultra-tight housing market right now. Inventory is low because sellers aren’t selling and home prices are vulnerable to a collapse because prospective buyers aren’t buying.
It’s not the buyers’ fault, either. Per MarketWatch, in September, housing affordability sank to its lowest level in 38 years. Moreover, the outlook isn’t great for next year. Doug Duncan, Chief Economist and Senior Vice President at the Federal National Mortgage Association (or Fannie Mae), expects the “higher-mortgage-rate environment to continue to dampen housing activity and further complicate housing affordability into 2024.”
What You Can Do Now
There’s no guarantee that a housing market crash will or won’t happen in 2024. The best thing any investor can do right now is to be prepared for whatever may come.
A prudent strategy would be to lighten up on real estate stocks such as Realty Income (NYSE:O) and Rocket Companies (NYSE:RKT). It’s also not a bad idea to ease up on stocks sensitive to housing market fluctuations. Examples of these stocks include Lowe’s (NYSE:LOW) and Home Depot (NYSE:HD).
On the date of publication, David Moadel did not hold (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.
