Is the housing market crashing?
In light of recent inflation results, the Fed responded hawkish for interest rate hikes. Previously, we had expected 6 25 basis point hikes in 2022 to curb January’s report of 7.5% (the highest CPI report since 1982). But after March’s report of 8.5%, the Fed announced more aggressive hikes are due. A 50 basis point hike will be on the table for the next Federal Open Market Committee meeting. The stock market took massive hits despite many companies reporting good earnings this quarter. Fortune 500 companies like Netflix, Disney, and Apple have fallen massively. Tech sector companies have taken some of the biggest hits with NASDAQ down 7.5% over the last week. Cryptocurrencies have been walking a tightrope between the downward pressure of the market and positive movement due to Elon Musk’s acquisition of twitter.
So how will this affect the housing market? Many buyers waiting on the sideline for market opportunities will be disappointed to find that in the event of a market correction they are still priced out due to increased interest on their mortgage. Mortgage rates are approaching 6% compared to 2020’s 2.5% while home values haven’t taken any significant hits. Builders still haven’t produced enough homes to suffice the demand. Millennials take over the majority of the market while Gen Z begins to enter the market as first time buyers. Many first time buyers rush to lock in interest rates while risking home values being rug pulled from beneath them.
House prices may shift any either direction in the near future, but the real trigger for a housing “crash” or major correction is the effect of interest rates on unemployment. The Federal interest rate and employment rates have an inverse correlation. Fed chairman, Jerome Powell announced their goal of creating a “soft landing” (raising interest rates without affecting employment rates). A soft landing is known as one of the rarest economic feats; it hasn’t been successfully landed since 1994. This would be the potential catalyst of the market crash. Fears of inflation and rising interest rates have the market flocking to the hard asset of real-estate, but a decrease in demand due to income would greatly affect the market. As homeowners default on their loans and potential buyers lose buying capabilities, supply will increase and demand will decrease calming the market.
