America..Is the world’s largest economy witnessing a new real estate crisis?


Washington – In late May, the famous businessman Elon Musk, owner of Tesla and the social networking site Twitter, said that “commercial real estate prices are falling rapidly, and house prices will follow after that.”

This prompted doubts among homeowners, and among those who wanted to buy a new home for the first time in their lives.

During the past two years, the consequences of the outbreak of the Covid-19 virus prompted many companies and shops to close their doors, especially with the spread of the phenomenon of remote work.

The real estate market is witnessing several overlapping phenomena that affect each other in a way that the American market has never seen before.

House prices rose to new records, while the interest rate on mortgage loans continued to rise to 7%, which led to a slowdown in the real estate housing market, while rents witnessed record highs.

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In 2022, for the first time in history, the average rent nationwide exceeded two thousand dollars per month (Getty Images)

Slowness in real estate markets.. but

Studies have shown that over the past 40 years, housing supply has not kept pace with demand, resulting in a housing shortage of between 2 million and 6 million homes. Low supply is one of the main reasons for the sharp increase in housing prices.

In 2022, for the first time in history, the average rent nationwide will exceed $2,000 per month, and figures show that nearly half of all renters are “burdened with the cost of housing,” spending more than 30% of their total income on rent.

While the housing market is already cooling down, the current slowdown doesn’t look like most real estate downturns. Home sales have fallen, and inventories of units for sale have also fallen sharply.

Homeowners who fixed mortgage rates at 3% two years ago are refusing to sell now that interest rates have risen to 7%. However, this correction will not be like the total collapse of real estate prices during the Great Recession, when some housing markets witnessed a decline in values. by 30%.

Will the housing market collapse?

During the period from 2005 to 2007, the real estate market in the United States witnessed great confusion, followed by a decline in the value of homes with the onset of the financial crisis in 2008, the bursting of the real estate bubble, and the American economy fell into the clutches of an economic crisis that was the deepest since the Great Depression in the 1930s.

In recent months, a number of economic commentators have expressed their pessimism, with the continued rise in mortgage rates (the inability to pay mortgage installments) and a possible recession, and this coincided with record increases in rent values ​​in various US states. This prompted homeowners to ask a familiar question: Is the housing market about to collapse?

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Home sales decreased by 3.4% from last March to April 2023 (Getty Images)

Key housing market statistics

Home sales fell 3.4% from last March to April 2023, says the National Association of Realtors. The average home sale price nationwide in April was $388,000, down 1.7% year-on-year.

The same month of April also saw the availability of housing stock supply covering a period of only 2.9 months, which is far short of the 6 months required for a healthy and balanced market.

Housing economists agree that prices could fall further, but the decline will not be as drastic as the drop in homeowners experienced during the 2009 recession.

One clear difference between the 2009 recession and what is happening now is that homeowners’ personal balance sheets are much stronger today than they were 15 years ago.

The typical homeowner with a mortgage has excellent credit, a high home equity percentage, and a locked-in fixed-rate mortgage with a rate of well under 5%. So no foreclosure crisis is in sight.

Moreover, market players have been cautious about the pace of construction, and the result has been a persistent shortage of homes for sale.

There simply isn’t enough stock, and even without strong supply, a repeat of the 30% drop in prices is highly unlikely.

Reasons why the US real estate market is far from collapsing

Housing economists point to several compelling reasons why a crash is not imminent, including:

Real estate inventory decline

The National Association of Realtors asserts that there is no shortage of homes available for purchase. This constant shortage of inventory explains why buyers insist on bidding on prices.

This shortage also indicates that the supply and demand equation simply will not allow prices to collapse in the near future.

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Studies have shown that over the past 40 years, housing supply has not kept pace with demand (Getty Images)

Not building fast enough to meet demand

Homebuilders pulled out after the recent collapse in the 2008-2009 crisis, and have not fully raised building rates to pre-2007 levels. Currently, they have no way of buying land and winning approvals fast enough to meet the growing demand.

And while they are building as much as they can, a repeat of the overbuilding of 15 years ago seems unlikely.

Demographic trends create new buyers

There is strong demand for homes on many fronts, as many Americans who already own homes have decided during the Corona pandemic that they need bigger places, especially with the spread of the phenomenon of working from home.

There are the huge millennials, who are likely buyers for the coming years, and there is the class of young Hispanic immigrants who are keen homeowners.

Lending criteria remain strict

In 2007, “sham loans” were very much in vogue, as it was common for borrowers not to need to document their income and assets.

Banks have made mortgages to anyone regardless of credit history or down payment size.

Today, lenders impose strict standards on borrowers, and those who get a mortgage mostly have excellent credit.


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America..Is the world’s largest economy witnessing a new real estate crisis?

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