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The housing market is adjusting to a new reality as demand slows and mortgage rates rise globally. This shift has led analysts to speculate about a potential housing crash. Here’s a look at the current situation and whether a housing bubble might burst in 2022.
In the United States, the housing market is feeling the impact of higher interest rates. The Federal Reserve has increased rates by 150 basis points and has indicated that more hikes are on the way. It’s expected that the Fed will raise rates by another 75 or 50 basis points in its July meeting and by 0.50% in the next one. After that, rate hikes will likely return to a more typical 0.25% increase.
High interest rates generally don’t bode well for the housing market. With mortgage rates at their highest in over a decade, many people are less inclined to take out loans.
This scenario explains why mortgage lenders like Rocket Companies and Better.com are struggling. Rocket Companies’ stock has dropped by 55% over the past year, while Better.com has had to lay off thousands of employees.
Recent data shows that the housing market is cooling off. For instance, housing starts and building permits fell sharply in May, and sales of new, pending, and existing homes have all decreased significantly. Despite this, the Case-Schiller House Price Index remains high, and with more Fed rate hikes expected, this trend might continue.
Some analysts are predicting a housing crash similar to the 2008/09 crisis. However, there are notable differences between then and now.
Back in 2008, the crash was driven by subprime lending, where banks issued loans to people who couldn’t afford them. When interest rates rose, many borrowers defaulted, causing the bubble to burst.
Today, subprime lending is much less prevalent, and delinquency rates are at record lows. Additionally, the job market is relatively strong, with an unemployment rate of 3.5%. While home prices may drop in 2022, a major housing crash like in 2008 seems unlikely this year.