The Coming Housing Market Downturn

After two years of rapidly rising housing costs, we’re now seeing signs of a housing market downturn in residential real estate. While it’s not necessarily true that what goes up must come down — sometimes prices rise and stay that way — when they rise as fast as they did, there’s bound to be some sort of deflation or at least a leveling off.

Today’s guest post from medical student Rui Bouça explores the data and indicators that point to a significant slowdown in the U.S. housing market. Rui Bouça is a freelance writer, content marketeer and SEO consultant. He just launched his newest website The Timeless Designer.

Despite the housing market’s skyrocketing during 2020 and 2021, the housing market is now cooling, and we may even be facing a recession. Housing prices have skyrocketed, and mortgage rates have reached their highest value since 2008.

Several facts support the thesis of the cooling housing market. On the supply side, we have a lower supply due to higher costs, which also pushes the prices of homes higher. On the demand side, we have higher interest rates which drive the cost of borrowing money and increase inflation. All of this makes it difficult to buy a house.

But still, even if we agree that the housing market may be on the verge of recession, why should you care? Well, spending on housing accounts for roughly 18% of the United States GDP. A housing market crash has enormous effects on the real economy and, consequently, on your pockets. This was made very clear in 2008.

1. Higher interest rates

This past June and July, policymakers approved a 75-basis point rate increase and are planning to further that rise in their meeting later in September. This was the most aggressive rate hike since 1994!

On one hand, this monetary policy makes the cost of borrowing money to buy a home higher. On the other hand, it is one of the most significant factors influencing the 10-year Treasury yield. This, in turn, is what fixed mortgage rates tend to track.

SWIPE UP NOW TO READ MORE

Three Years of FIRE and the Point of No Return

MORE STORIES

Financial Independence Without Delayed Gratification