There’s one sign after another, it seems, pointing to a housing market crash in 2024 or even this year. Not long ago, the 30-year fixed mortgage interest rate hovered near 8%. Plus, U.S. mortgage application volume has been on the decline, indicating low demand for housing loans.
Adding to the concerns, a recent Fortune report suggested that the housing market may be starting to “crack.” Could a lack of affordability send the market into a tailspin? And what should investors do about this?
Stunning Report Raises Concerns About Housing Market Crash
Believe it or not, the average U.S. existing home price is up nearly 6% this year so far. It’s also up 2.6% year-over-year, which, according to the Case-Shiller index, is “well above the median full calendar year increase” based on over three decades worth of data.
Yet, it’s not only the price of the home itself that’s on the rise. As we referred to earlier, mortgage interest payments are also unusually high. According to Redfin (NASDAQ:RDFN), these high mortgage rates are forcing some home sellers to “cut prices to make up for the added expense buyers have to come up with on monthly mortgage payments.”
Shockingly, nearly one-fourth of new home buyers are now paying $3,000 or more per month on their mortgages. To put it simply, between the high cost of the home and the elevated interest payments, many Americans simply can’t afford to purchase a new home anymore.
Consequently, some sellers are dropping their listing prices. Redfin’s most recent housing-market update indicates that during the four weeks ending Sept. 24., approximately 1 in 15 U.S. homes on the market decreased in price. Compared to the same period in prior years, this is an unusually high rate.
As Moody’s Analytics economist Matthew Walsh explains: “Sellers need to cut prices to counteract higher payments, and keep buyers interested in their property in a market with fewer buyers.” This may be a welcome development for prospective home buyers if it persists. However, it could also be a sign that the American housing market is, indeed, starting to “crack” now.
What Does This Mean for You?
It’s still too early to declare a housing market crash, even if Wells Fargo economists seemed to suggest that a real estate market recession is coming. Panic-selling your investors or selling your home to avoid a potential market crash certainly isn’t necessary.
The best defense is to monitor the situation for further developments. Ultimately, the balance of buyers and sellers, along with the future path of interest-rate policy, will determine the health of the U.S. housing market.
So, don’t feel the need to sell your house and your stocks right now. There are worrisome signs, no doubt. Yet, a housing market collapse, while it’s always possible, cannot be predicted with certainty.
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.
