Many people are wondering if we’re due for another housing market crash. Since the coronavirus pandemic left a major negative impact on our lives, it’s no surprise. The memories of the 2008 crash are still fresh in the minds of US homeowners. Are we getting closer to such a disaster?
This is an important question if you plan to purchase a house this year. After all, it will affect the prices home buyers will get and the costs of maintaining their property. On the other hand, an investor should know the conditions that would affect the value of their asset. In turn, an investor can figure out if they should enter the real estate market or not.
Before answering these questions, I will discuss how the novel coronavirus influenced the housing market. After that, I will explain why experts think we won’t be seeing a housing bubble similar to the one from ‘08. If you’re planning to buy a home, you’ll see if this is the best time to do so. As for investors, I will discuss whether or not real estate is a good investment right now.
How did COVID affect the housing market?
Let’s get into the root of why people are asking, “Is the housing market going to crash?” Despite being a public health issue, COVID-19 harms the global economy.
In March 2020, countries closed their borders to keep the coronavirus from spreading too much. People had to stay indoors more often, so many businesses closed down.
In turn, many people lost their jobs and ran out of money. Based on this, it’s easy to think that the demand for housing would crash. The lumber industry even believed this, so it eased on production.
Little did they know, people would do the opposite. The lockdown caused a lot of foreclosures, and the Federal Reserve reduced interest rates to soften COVID’s economic blow.
This meant that there were a lot of existing homes for sale, and they were much cheaper than ever. As a result, the demand for housing went through the roof!
In the United States, people even went on bidding wars for homes they haven’t even seen yet. Next is a textbook application of the law of supply and demand.
As the demand for housing soared, high prices for homes became common. Eventually, the rapid increase in housing prices triggered flashbacks of the 2008 Financial Crisis.
Will COVID crash the housing market?
There are valid reasons to expect the real estate market to crash. For example, investment banking firm Goldman Sachs said US home prices would rise by 16% this year.
Over the past 12 months, it already had a slightly higher hike of 17.7%. On the other hand, mortgage loan company Fannie Mae said there would be a 7.9% hike by 2022’s fourth quarter.
If you ask experts, “Is the housing market going to crash” they’ll answer, “probably.” Yet, they reiterated that it wouldn’t be as severe as 2008. They point to two reasons:
- The current rate of inflation will diminish the buying power of many people. This means they will need more money to purchase things.
- The Fed may soon raise interest rates again so that home prices will be even higher.
Can we count on these conditions to ensure a housing market crash wouldn’t happen? In 2008 had similar assumptions, yet they still saw the real estate market blow up.
In other words, we cannot be sure that such a disaster won’t happen this year. Still, home buyers and investors can benefit from the current market conditions.
Read More: What Every New Homeowner Should Know?
Should you buy a home now?
If you’re planning to buy a house right now, it might be best to look for a foreclosed option.
Here are the reasons why that might be a good idea:
- These are homes that owners had to forfeit because they couldn’t keep up with payments. This means that lenders want to sell these homes as quickly as possible. As a result, you may save up to 15%!
- This might be your chance to live in that neighborhood you’ve always wanted! Look around, and you might find a place that’s up for grabs.
- First-time homebuyers avoid purchasing foreclosed homes. This means you won’t find many people who have their eyes set on your chosen property.
However, you should perform more steps before you buy a new home. Here are the things you need to do if you’re aiming for a foreclosed house:
- Research – Asking, “Is the housing market going to crash?” is just the start. Confirm you don’t have a “seller’s market” for your property. This is when there’s a huge demand for homes, which varies depending on the vicinity of your chosen property.
- Choose your repayment plan – Unless you can buy a home with cash, you will pay with a home loan. You might want to try searching for a 30-year fixed mortgage rate, so your monthly payments are as low as possible. Still, you will have to check the other terms and conditions too.
- Look for experienced real estate agents – it would be best to find an agent who has certification from the National Association of Realtors. They can make your home-buying experience easier and safer.
- Obtain a preapproval letter – The lender will give you one after assessing how much money you can borrow for the property.
- Submit a competitive offer – Your real estate agent can help you get the best deal for your residential property.
Should I invest in the housing market?
Investors have also asked, “Is the housing market going to crash?” but they know how to earn money even from such a downturn. However, the profits will likely come in the long term.
If you want to invest in real estate, you might want to start home buying. As I said, you might want to get foreclosed homes because they’re usually at a lower price.
Just be careful when timing this investment. Until someone buys it, you will have to pay for its costs! If the real estate market does crash, you might find it hard to sell that house.
This is why some people prefer mortgage-backed securities. It’s like an ETF, but it’s a collection of home loans. This lets you profit from mortgage firms without directly buying or selling loans.
Another way you can invest in the housing market is through real estate crowdfunding. It’s when a property owner allows regular folks to invest funds in their building.
Those funds will either help attract renters or encourage buyers for an existing property. On the other hand, it could pool funds for a new building. The investors earn once the funding’s goal is reached.
Final thoughts
This article is not meant to provide investment advice. It just tries to answer the question, “Is the housing market going to crash?” Home-buyers and investors must do the research themselves.
They must have a concrete goal to find solid options for it. Regardless, investors and homebuyers must remember that the global economy can be unpredictable nowadays.
Fortunately, the other articles from Financial Daily Updates can help you make sense of what’s happening in the world of finance. They’re also a great source of money management tips!
