Street in southern England with typical houses. There is a main street in a village with typical British houses on the side. They are red and white with a wall and a small gate on the front.
The housing market is showing some strains as the Federal Reserve and other central banks embrace a hawkish stance and mortgage rates surge. As a result, warnings of a housing bubble bursting have been around. So, in this next housing crash crash prediction, we will explain the current state of things and what to expect.
A bubble is defined as a market cycle characterized by a surge in the prices of financial assets like homes, stocks, and even cryptocurrencies. A good example of a bubble is what happened during the dot com bubble as investors bought companies whose value was in the .com suffix. Another example of a bubble was in the crypto industry when everyone was buying digital coins as their prices jumped.
So, are we in a housing bubble? Some people believe that we are indeed in a housing bubble, considering that prices have been in spectacular growth in the past few years. In the United States, the median home price has jumped to over $400. In the UK, the median home price has jumped to almost 274k pounds. The same trend is being seen in other countries like Australia, Canada, and New Zealand.
There are several reasons why this has happened. First, the housing supply has declined sharply as homebuilders paused new construction during the pandemic. At the same time, the cost of everything, including lumber and paint, has gone up dramatically in the past few months.
Another reason is that mortgage rates have declined sharply in the past few years. This has incentivized more people to borrow money. Still, the fact that home prices are at elevated levels does not mean that we are in a housing bubble or that home prices will soon crash.
Recent data show that the housing sector is struggling. For example, data published this week showed that new home sales crashed by 16% this year. Further data are expected to show that pending home sales have also declined dramatically in the past few months.
At the same time, while housing inflation is real, there are signs that prices are not growing as fast as they did in the past. For example, the chart below shows that the Case-Schiller house price index has been growing.
With the Fed set to push rates dramatically higher, expectations are that the housing sector will see a dramatic slowdown in the next few years. If this happens, it will be a good thing for people who are sitting on the sidelines waiting for prices to rebalance. So, in my opinion, we will see prices start to fall but not necessarily a crash as we saw in 2008.
This post was last modified on May 26, 2022, 07:41 BST 07:41