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The housing market is starting to cool down as interest rates rise in many countries. This has led to concerns about when the housing bubble might burst and if it will happen in 2022. In this analysis, we’ll explore whether a crash is likely this year and what to expect.
Housing has been a major part of economies around the world, which explains why prices have soared in recent years. This surge was driven by low-interest rates, high demand, limited supply, and increasing building costs, such as the prices of lumber, cement, and paint.
However, recent data indicates that the housing market is slowing. For instance, new home sales fell by 16.6% in April as prices continued to rise. Pending home sales also dropped sharply, along with existing home sales, building permits, and housing starts.
This slowdown isn’t just happening in the US. In countries like Australia, New Zealand, and the UK, the trend is similar. Zoopla’s data shows that UK home prices have hit a record high, but the growth is slowing down. One in twenty properties listed saw a price reduction, and homes are taking longer to sell. For example, a typical three-bedroom home in London now takes about 18 days to sell. Additionally, the number of homes on the market has increased.
Rightmove also reported that the increased cost of living and rising interest rates are expected to impact the market later this year. The combination of more homes available and buyers reconsidering their budgets is likely to moderate the market.
Some analysts believe the housing market might crash in 2022. Jeremy Grantham, a well-known investor, recently warned that we could be in a “superbubble” that might burst soon. There are also indications that some Federal Reserve officials want to see prices come down. For example, Christopher Waller suggested that he would support raising rates above the neutral level in December. If this happens, higher mortgage rates could drive prices down.
It’s still uncertain whether the housing bubble will burst this year. However, it’s clear that prices are expected to start moderating. An analyst noted that while demand has softened, it’s not a disaster. There are still more buyers than sellers due to the ongoing shortage of inventory.