There is no shortage of consumer demand in today’s housing market. Low interest rates make shopping more affordable than ever. mortgageand despite significant increases in home prices, buyers continue to insist that homes be called their own.
All of this puts sellers in a pretty advantageous position, but today’s hot housing market won’t last forever. While we cannot predict when the situation will cool off dramatically, there are certain signs that indicate an impending accident. Here are some of them to look out for.
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1. Housing prices are starting to level out after several months of steady growth.
In 2021, the value of houses has grown steadily month after month. But at some point, it is likely to plateau. And that may be the first sign that a housing market crash is looming. However, the market is so overblown these days that prices tend to decline at some point, and this is not necessarily alarming. But if they remain unchanged for a long period of time, this could mean the beginning of a real estate market crash.
2. Mortgage balances are starting to rise.
Borrowers these days take out higher mortgages than ever buying a home. The reason for this is largely due to the fact that house prices are so overpriced. But overall, the rise in mortgage balances suggests that too many buyers are sneaking through their heads. One result of this is that over time, those same buyers may need to unload their homes right away, causing an oversupply (the opposite of what we are seeing today) and a sharp drop in demand.
3. More and more borrowers are forced to pay for private mortgage insurance.
Although not everyone mortgage lender requires a 20% down payment at closing, it is recommended to deposit this amount. Buyers who do not pay the 20% down payment receive private mortgage insurance (PMI), a costly premium that protects lenders in the event that borrowers delay their payments. When a growing percentage of borrowers get stuck paying PMI, it may indicate that they were not initially in a strong enough position to buy a home. It also means that more buyers are likely to be stuck underwater with their mortgages when home values fall, meaning they owe their lenders more money than their homes could sell.
4. Growth in mortgage rates.
Right now, the reason many buyers can still afford a home despite inflated prices is because mortgage rates extremely competitive. But once rates rise, homes may become less affordable. Once this happens, the demand for homes may decline. And at this point, sellers are often forced to cut house prices in order to remove them from the market.
Should you worry about a housing market crash?
The housing market crash is not something that makes you absolutely need to sleep awake at night. The last time the housing market crashed was in 2008, it was fueled by risky lending practices that caused borrowers to borrow far more homes than they could afford. This is not what is happening now.
Buyers borrow more these days because homes are more expensive, but lenders have also tightened their loan requirements following the 2008 crash and pandemic. Thus, we are in a completely different boat.
However, if you are thinking of selling your home, it is worth keeping the above points in mind and considering moving forward with the listing if any red flags hit your radar. This way, you won’t get stuck missing out on an opportunity to make a good profit for your home.