When the housing market is at a high, like we’ve seen in the past two years, there will come a time when it takes a downturn because of supply and demand. If you’re a current homeowner, market crashes still affect you by increasing mortgage rates and making it extremely difficult to sell a home, which usually means a loss in money. Be familiar with the signs of the market coming down so you know when to buy or sell a home.
Spike in Interest Rates
To keep inflation to a minimum within the economy, the Federal Reserve will increase borrowing rates between banks, forcing them to include higher interest rates on your mortgage. If you’re a current homeowner and do not have a fixed mortgage, this could be harmful to you because it could move your monthly payments to an unsustainable number you cannot afford. When no one is applying for mortgages anymore, you can assume the market is going through a downturn.
Slower Sales/More Inventory
When sales of homes start to slow down, inventory increases. Demand for home buyers will decrease the sales, effectively dropping the price of the houses. This is a good sign for the housing market because, in a downturn, new buyers have more opportunities to find the right home. If you flip houses during this time, it could be an excellent investment because there is more of a variety of houses to pick from at better prices.
Laying Off Real Estate Agents
You would assume that when inventory is high for homes on the market, you would need more real estate agents—however, when no one is buying houses, there is no need for multiple agents. In order for real estate companies to save money in a downturn, they must do what is necessary and lay off agents.
Little to No Competition
If the price of the home has yet to drop and mortgage rates are still astronomical, then fewer families and individuals will be looking to purchase a house. Once the market officially hits the downturn, sellers will most likely lower the asking price the longer the home is on the market because not enough bids are coming through. The seller has control and power over the price, so they could keep it higher, but they generally won’t if they aren’t seeing anyone have an interest in their home.
Increase in Foreclosures
Previously, we mentioned the increase in mortgage rates, which will also increase the number of foreclosures. This is because when the rate skyrockets, homeowners are most likely paying monthly rates more than what the house is worth, making this unsustainable. If you see a lot of homes on the market that are foreclosed, you can assume there is a downturn happening in the market.
Be aware of a housing market downturn so you can better prepare if you are a current homeowner or plan on buying one soon. Be careful purchasing a home during this time because while prices might be lower, there are still high mortgage rates. With a lack of competition, you have time to decide; ensure you contemplate every variable before making the purchase.
