For future homeowners in the United States, the rapid rise of interest rates in 2022 has thrown a wrench into the search for a new home. Not only are interest rates at their highest level since the early 2000s, but low housing inventory has led to a rapid rise in sale prices.
When you add the lingering effects of the pandemic and the inflation gripping the country, increasing the cost of goods and services, it’s no wonder that some buyers are thinking about waiting to buy a home.
In August, The Los Angeles Times reported that sales of new and existing homes in the six-county Southern California area dropped by 28.3% from a year earlier. Recent data published by CNBC and the Mortgage Bankers Association also reveals that mortgage demand is at its lowest point in 25 years.
Don’t Count on a Housing Crash
It’s hard not to compare the current state of the economy to 2007 and the “Great Recession” that tanked the economy. Some prospective buyers may assume that the economy will take a turn for the worse and home prices will follow with a legitimate housing crash.
However, today’s economic instability and high home prices aren’t due to the risky lending practices that marked the early- to mid-2000s and were the primary cause of the recession. Instead, the high home prices, particularly in regions like Southern California, are caused by a lack of available homes.
According to an article from Time, limited inventory is just part of the story. Builders are facing difficulties securing enough labor and finding available lots. Inflation has pushed lumber and building material prices to record heights.
An article from CBS News suggests that some economists think home prices may drop by 20% in 2023, but the more common consensus is that prices may dip between 5% and 10%. Buyers shouldn’t base their purchase on the idea that housing prices might drop 10%.
Tight Supply Will Ensure No Major Changes to the Housing Market
One of the most significant factors in the health of the housing market is the number of available homes. Housing inventory has dropped for years, and prices have increased as demand has soared.
Figures published by Trading Economics reveal that available homes were at an all-time low in January 2022 and have fallen every year since 2007, when inventory was at an all-time high. Housing inventory has risen in 2022, but it hasn’t reached a point where it would make a noticeable impact on housing prices.
With millions of millennials entering the homebuying process, it’s doubtful that demand will drop significantly in the next few years. Although home prices might stall or drop a little, it’s unlikely that home prices will fall off a cliff and the entire housing market will crash.
When Conditions are Right, Buy a Home
It’s essential to consider the benefit of buying a home separate from the black-and-white financial considerations of the transaction. When you find a property that fits your personal needs and isn’t a financial burden to buy, the best decision is almost always to purchase now rather than wait.
Consider that home prices in Southern California probably won’t experience a steep fall in 2023. Housing prices may dip marginally, and sales may decrease, but the California Association of Realtors expects a modest 7.2% decline in single-family home sales in 2023. That’s hardly a housing crash or a market reset.
The association also estimates that housing prices will dip just 8.8% in 2023, which isn’t enough of a decline to delay purchasing a home. One of the essential things to remember about buying a home is the amount of equity gained over the course of a year versus the savings one might expect by waiting to purchase.
A homeowner who buys today gains equity every month they own a home, and a home is an invaluable asset for families, building generational wealth and creating stability.
At the end of the day, buying a home is almost always the right decision when all the pieces fall into place. If it’s the right time in your life to buy a house and you find the perfect place, avoid playing a guessing game regarding the future health of the economy. Jump at the opportunity to buy your home.