Housing market predictions are appearing everywhere, but that’s what they are – predictions. You could also call them best guesses. A wide array of analysts, investors and real estate companies have been predicting that housing prices will drop from 5% to 25% by next summer. The disparity of those numbers indicates that investors and homeowners may be taking a wait-and-see approach. However, the Federal Reserve Bank of Dallas just predicted a drop of 20%, leading more people to take notice.
The Dallas Fed is one of 12 regional reserve banks that, along with the Board of Governors in Washington, D.C., make up the nation’s central bank. And even Dallas Fed economist Enrique Martinez-García admits its projections are a bit doomsday, calling it a “pessimistic scenario.” But the reality is that a steep decline in housing prices would negatively affect the U.S. economy, according to Martinez-García.
Housing prices blew up when the pandemic created a mix of demand and low mortgage rates, accompanied by work-from-home scenarios. Martinez-García pointed to the fact that at the height of the market, buyers waived contingencies like inspections and used cash to compete in bidding wars, which resulted in homes being purchased for thousands over asking prices. He said that fed into what became a housing bubble. But rising home mortgage rates, which are now over 7%, altered the market.
Not everyone is buying into the negative scenario, especially those on the front line of real estate investment. Ryan Frazier, the CEO of Seattle-based Arrived Homes, which gives its clients an opportunity to invest in fractional shares of rental homes, believes some negative predictions about the housing market are excessive.
“While it’s impossible to predict the future, concerns about a housing crash are exaggerated. While many markets will see price decreases, we don’t see another 2008 crash repeating,” Frazier said, who reminds his customers to have a long-range view of real estate investments. “We are of the firm belief that trying to time the market is really tough to do and the best way to maximize your investments is to have a long-term mindset where you buy and hold.”
Despite the dour predictions, home prices today are still rising. According to the National Association of Realtors, home prices, though slowing, increased in value by 14.2% in the second quarter.
The Dallas Fed report also concluded by supporting the Federal Reserve’s notion that raising interest rates is a solid means of defeating inflation, including its corollary effect on the housing market — “Although the situation is challenging, there remains a window of opportunity to deflate the housing bubble while achieving the Fed’s preferred outcome of a soft landing.”
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Source: https://finance.yahoo.com/news/predictions-20-drop-home-values-155407089.html