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The Housing Market is Sinking!

What’s up everyone

Is the Housing market sinking?

According to Fortune Magazine, 16 housing markets are going down while 23 others may be spared. Lets see which markets they think will survive a crash and which won’t. 

Lets just dive right in-

Last week, Lance Lambert posted an article on Fortune showcasing which markets are the most vulnerable to a housing crash. 

As we know, rising mortgage rates along with rising prices have caused the housing market to start correcting. 

The Fed Reserve has intentionally driven rates up to combat inflation and its working. The housing market is very different than it was 6 months ago. Prices are going down and inventory is going up.

While most housing economists insist this cooling won’t lead us into another 2008-type housing crash, the housing correction does increase the possibility that some markets could see steep home-price declines

To find the housing markets at the highest risk of a housing crash, Fortune teamed up with Home.LLC .

To calculate the risk assessment, data scientists at Home.LLC worked with Fortune to build a forecast model using 14 metrics including include building permits, land use restrictions, delinquency rates, housing inventory, and average home tenure. They looked at the 100 largest metropolitan statistical areas in the nation.

They then grouped regional housing markets into three tiers: low risk, moderate risk, and high risk.  The housing markets in the high risk category are the most vulnerable to a housing crash.

Among the nation’s 100 largest housing markets, 23 markets fell into the low risk category, 61 housing markets got the “moderate risk” label and 16 markets were labeled “high risk.” 

That’s a sizable shift since last month. Back in June, they labeled 37 markets as “low risk,” 52 markets were labeled “moderate risk,” and 11 markets were put in the “high risk” camp.

Take a look at this map provided by Fortune and Home LLC.

It looks like they labeled the DC area Moderate risk. I think that sounds about right. I’m definitely feeling the shift and depending on the house, it may have a price reduction or still could have multiple offers if it is priced right, in great condition and a highly sought after neighborhood.

Check out Florida. 8 out of 16 high risk markets are in Florida. 

Those “high risk” Florida markets include Cape Coral, Deltona, Jacksonville, Lakeland, Miami, North Port, Palm Bay, and Orlando.

“Most Florida markets face significant risk of oversupply of inventory,” Nik Shah, CEO of Home.LLC, told Fortune

He goes onto explain that as the pandemic housing boom took hold, homebuilders across zoning-friendly Florida ramped up production. So now the elevated homebuilding levels make Florida a higher risk of “oversupply,”. 

If home sales continue to go down, the over supply of inventory may be too much to sustain. 

Lambert writes, “That oversupply scenario, of course, is how markets like Miami, Las Vegas, and Phoenix got hammered so hard back in 2008.”

Lets go back to the map to see the other high risk housing markets. 

Fortune and Home.LLC put Both Phoenix and Boise in the high risk category. Both of these markets flourished during the last 2 years  when a lot of tech people moved there from Seattle and San Francisco because they could work from home. 

As Lambert notes that there is less of that now. “Recession fears coupled with spiking mortgage rates have put cold water on those Work From Home moves.” 

The other threat that is noted in this article for the “high risk” markets is investors. 

“Over the past two years, markets like Atlanta, Jacksonville, and Phoenix were bombarded with interest from investors—everyone from mom-and-pops to institutional buyers. On the way up, it helps. But as things slow, those investors could put downward pressure on home prices.”

This makes sense because investors, unlike home owners, make decisions based on business statistics. They’re always weighing their profit and losses. When a market is hot, they buy as much as possible. When a market cools down, they may decide to get out of it quickly. 

John Wake, an independent real estate analyst based in Phoenix, said, “If Phoenix real estate isn’t the cool investment anymore in 2022, it could have a big and quick impact on home sales. If a lot of investors decide to sell…yikes.”

As we all know, if we get a great influx of inventory, this will cause prices to go down. Esp with the high interest rates and priced out buyers. 

According to realtor.coms latest data, Active inventory continued to grow, rising 28% above one year ago. Fortune reports that Between January and June, U.S. inventory climbed 51%. In places like Austin and Boise, inventory jumped 122% and 161%, respectively.

Ali Wolf, chief economist at Zonda, told Fortune he doesn’t think the market will crash like it did in 2008 due to the stricter lending standards. However, he says, We can’t ignore that the market is already correcting. Higher home prices and higher mortgage rates rose to the point that demand seized up in many parts of the country. Home prices are already adjusting down, and we could see that continue until consumer confidence and affordability reset.”

It seems most of the economists believe markets that are overvalued, like Phoenix and Austin, have already entered into a home price correction.  Moody’s analytics predicts that those markets could see prices fall by by 15%-20% if a recession hits. 

What are you seeing in your neck of the woods? Do you feel the impact of a housing correction? Are there a lot of price reductions? If so, by how much? Comment below and tell us where you live. 

Last week, Redfin published their housing market update. Lets take a look.

Daryl Fairweather , the Redfin chief economist, said “Inflation and high mortgage rates are taking a bite out of homebuyer budgets,“ “Few people are able to afford homes costing 50% more than just two years ago in some areas, so homes are beginning to pile up on the market. As a result, prices are starting to come down from their all-time highs. We expect this environment of reduced competition and declining home prices to continue for at least the next several months.”

According to Redfin, On average, 7.1% of homes for sale each week had a price drop, a record high as far back as the data goes, through the beginning of 2015.

Other indicators of the market are:

  • The seasonally-adjusted Redfin Homebuyer Demand Index—a measure of requests for home tours and other home-buying services from Redfin agents—was down 18% year over year during the week ending July 10.
  • Mortgage purchase applications were down 18% from a year earlier during the week ending July 8
  • Pending home sales were down 14% year over year, the largest decline since May 2020.

These indicators definitely show a slow down of the housing market.  I think that the buyers that remain in the market are now waiting to see how much of a correction is happening. Even with the dip in mortgage rates the last few weeks, I still don’t see an influx of Buyers right now.

Now, it is the middle of the summer which is always slower around here. What about where you live? Does it usually slow down in the summer? Do you know someone who is buying a house right now? Are they waiting or still actively searching?

Comment below. 

I hope you got some value out of todays video. 

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