By Craig Erwin, Ph.D.
AN ABRUPT END TO THE HOUSING BOOM A few months ago the housing market was on fire. Home prices had shot up, multiple buyers would make cash offers above an asking price, and flippers (those who buy houses purely for profit, with no intention of living in them), were aggressively bidding home prices higher. Those days are over. Now prices are falling for the first time in years, most prospective buyers can no longer afford to buy (thanks to higher mortgage rates), and many prospective sellers have cold feet, waiting for prices to rebound.
Will the housing market overheat again soon? Not likely. The Federal Reserve (the U.S. central bank) is expected to continue to raise interest rates for the foreseeable future, in an effort to cool the economy and inflation. This is likely to raise mortgage rates further, making houses even less affordable, even though rates are twice what they were a short time ago. Companies have also started laying off workers and more layoffs are expected. That, combined with the Fed’s actions, is likely to further reduce the number of people who can afford a home.
If you have a home, consider yourself lucky (as long as it’s paid off or you have a job and can handle the mortgage). Unfortunately, thanks to the Fed’s aggressive efforts to tame inflation, many more may lose their jobs, making it difficult or impossible for them to make mortgage payments. If you want to buy a home, you may have to wait until conditions are more favorable, after home prices fall further and the Fed has stopped raising interest rates. The housing market is cyclical, so if you don’t like its current state, you can wait for conditions to become more favorable. That makes much more sense than having to pay way too much for a house or getting a mortgage that you will find very difficult to manage.
Do you own a home? If so, is it hard to manage your mortgage?
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