Right now, there is a huge surge on both sides of the spectrum: new home sales are down significantly, but mortgage rates are also about to increase substantially next year. This will translate into lower home sales and even more expensive new homes. Here are some reasons why the housing market is slowing down.
1. Banks Are Slowing Down Lending
The main reason is that the banks have been extremely tight with lending, and it is clear that the housing market needs a lot more liquidity in the short term. Despite the fact low-interest rates are still in place, many bankers are wary of making too many risky loans. In addition, there are a lot of issues with foreclosure these days, so lenders want to ensure they aren't losing their money.
2. Mortgage Rates Have Gone up, and They're Going to Rise Even Further
Mortgage rates have been at historically low levels for quite some time, and they are likely to increase significantly next year. One of the main reasons is that the US Fed has been raising interest rates, which means banks will have to make more mortgage payments on their loans. Since there is already an imbalance between supply and demand due to home foreclosures and downsized housing, lenders are unwilling to take additional risks.
3. The Housing Foreclosures Are Heating Up
Since the housing bubble popped, foreclosure has been a severe problem. However, that is likely to change shortly. Foreclosure filings are at a 3-year high, which doesn't bode well for real estate prices. This will also keep homebuyers away from the market because there are too many uncertainties surrounding real estate for potential buyers to feel comfortable about making a purchase.
4. The Homeownership Rate Is Low Due to First-Time Buyers
Homeownership rates have been falling steadily for years now, which points to one crucial issue: it is becoming more difficult for first-time buyers to enter into their first home purchase because mortgage rates have increased so sharply. In addition, home prices are increasing faster than incomes in many parts of the country. However, that is something that is expected to change over time.
5. Many People Are Waiting for Prices to Downturn
After the housing bubble burst, it is clear that many people are waiting for prices to decrease even further before buying. They say demand will outstrip supply shortly, which would be an excellent time to buy. The problem is that prices could keep rising because there are more foreclosures, interest rates are increasing, and banks have tightened lending standards. As a result of all these factors, home prices will rise over the next few years.
6. Investors Are Waiting for Values to Decrease Further
Some investors have been waiting for prices to go down before buying, but that is not likely to happen. Investors are a huge part of the real estate market, so it will be an excellent time for homebuyers if they start coming back. However, as long as things don't change too dramatically, they will likely continue waiting until prices decline further before buying.
7. There Are Too Many New Homes Being Built in Some Areas
Ironically, the housing market may slow because there are too many new homes in some areas. The national inventory levels are stable, which could pressure prices and sales figures. In addition, the demand for homes is falling pretty rapidly. One of the reasons for that is that many people are putting off home purchases because of the many uncertainties surrounding housing prices.
8. The Homeownership Rates Are Going to Go Up
While homebuyers are not as optimistic as they were a few years ago, it is expected that the homeownership rate will rise over the next few years because of more foreclosures being filed. This will also likely result in more potential homebuyers in the housing market. In addition, first-time buyers are more willing to buy homes now than in the past few years due to more accessible credit standards.
Despite all these potential problems, the housing market is expected to rise over the next few years. The only problem is that the rise will be much slower than it was in the past. This is due to a decrease in homebuyer confidence, and many people wait for prices to go down even further before buying.