Has Real Estate Market Been Over Valued?

Has Real Estate Market Been Over Valued

Homebuyers suffer from the fastest-rising mortgage rates in decades, so home sales have plummeted. And forecasters aren’t sure where the market is headed.

After the Fed abruptly ended the housing boom that stemmed from the pandemic and recorded low-interest rates, the housing market went into a sharp slump this summer.

Before 2 drops in recent weeks, mortgage rates rose to 7%, a 20-year high. For 9 straight months through October, existing home sales have fallen, the longest streak the National Association of Realtors has recorded since 1999.

It is very difficult to predict how long the housing slump will last and how severe it will be, given the speed at which mortgage rates have risen this year. It is usual to increase interest rates to cool the housing market.

Prices have fallen, but they are well above their pre-pandemic levels, a mixed sign but not the only one, demand has plummeted, but the housing supply remains low. And yes, interest rates are through the roof compared to last year, but they are below what they were in the decades when many Americans bought their first homes.

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Redfin Corp CEO Glenn Kelman told us, “When prices go up, people can’t believe housing is going to go down, and then once prices go down, they can’t believe it’s going to go up.”

Buyers were seeking more space as remote work increased due to the pandemic, and rock-bottom interest rates made buying affordable for many Americans.

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During January 2020 and June 22, home prices soared more than 40%, according to data from the S&P CoreLogic Case-Shiller national home price index. Young people also moved out independently instead of living with roommates, which shot up rents.

The Fed Chairman came to describe the boom phase of the real estate market as a “bubble”.

“Housing prices have gone up to very unsustainable levels and overheated.” “Now the housing market will go through the other side of that and hopefully come out in a better place,” he said at an event on November 30.

House prices for the coming year have mixed predictions, economists say. Goldman Sachs Group Inc. forecasts a 7.5% drop. Meanwhile, KPMG LLP, an auditing and consulting firm, calls for prices to fall 20% next year, the Mortgage Bankers Association expects prices to rise 0.7% next year, and the National Association of Realtors forecasts a 1.2% rise in existing home prices

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Inflation is at a 40-year high and will depend on how long it takes the federal reserve to control the duration of the decline in home sales. The Fed has unleashed a series of interest rate hikes to control inflation, the fastest since the early 1980s. Other factors, such as wage increases, could keep inflation boiling. The Fed’s efforts to slow the economy depend largely on the housing market slump, both because that cools demand for goods and services and because housing significantly contributes to inflation.

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