By John Rolls
This is shaping up to be the most dramatic housing crash we have ever seen. Mortgage rates haven’t been this high in over 23 years. Meanwhile, in October, sales dropped to the lowest level since the Great Recession. Now, the number of home listings is rapidly rising, and sellers are having to slash their prices to be able to strike a deal. The market already hit a turning point, and new data suggests that it’s all downhill from here.
Real estate agents, homebuilders, and mortgage lenders are getting increasingly pessimistic about the future of the market. Americans are extremely worried about losing equity in their homes or losing their homes altogether. When home sales rapidly fall after growing consistently year-over-year, it could serve as a warning sign of a housing market crash. That’s because declines in sales volumes can affect home appreciation, and when enough sellers are unable to find a buyer for their homes, they will have to lower the price to attract more buyers.
In the third quarter, home sales plunged by 15.1%, meaning that the number of existing homes sold fell to levels not seen since the fallout of the Great Recession. With mortgage rates nearing 8%, the majority of would-be buyers are currently priced out of the market. That is leaving sellers no choice but to significantly reduce their asking prices right now. According to data provided by Zillow and Redfin, a record number of sellers dropped the prices on their listings in the past quarter. In September, the percentage of home listings that had a price cut jumped to 9.2%, and in October, that figure went up by an additional 7%, an “unusually high” month-over-month increase, analysts said. Moreover, the National Association of Homebuilders reported that 32% of homebuilders slashed prices in the past month, with an average drop of 6% nationwide.
Meanwhile, housing inventory continues to grow. The supply of unsold homes in the market is starting to pile up. There are now more than half a million homes unsold active on the market. The latest numbers shared by the National Association of Realtors show that the U.S. housing inventory is almost 6% higher than it was a year ago. If the number of properties on the market is increasing, but the demand is keeping pace, that’s a significant indicator that there are more sellers than buyers, and the market is about to face a major shift.
Housing bubbles don’t happen out of thin air, and the same is true for housing crashes. There are always early signs that indicate things are starting to get out of hand in the market, and we need to recognize the red flags before the downfall begins so we can safeguard our finances.
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