- RAW Developments
The housing market frenzy will pass. Just not this spring
Source: The housing market frenzy will pass. Just not this spring. | Fortune
By: LANCE LAMBERT
U.S. home prices are up 18.8% over the past 12 months. That's well above the highest year-over-year rate (14%) notched leading up to the bursting housing bubble in 2008.
But housing economists are clear: This frenzy will eventually end. Simple economics dictates that home price growth can't outpace income growth forever. At its latest reading, home prices were growing six times faster than wages.
The housing market will eventually cool. That's the good news. The bad news? All signs point to the housing boom continuing through at least the spring housing market we've just entered.
"We are right in the heart of spring homebuying season, and it's wild and it's crazy out there. It is causing some frustration at this point in the real estate market," Devyn Bachman, vice president of research at John Burns Real Estate Consulting, told Fortune. "It's going to be tough [for buyers] through at least the spring."
What's going on? Heading into 2022, it was widely believed in the real estate industry that housing inventory, which had plummeted amid the housing boom, would finally begin to normalize. The thinking was that the end of COVID-19 mortgage forbearance protections would see more homes hit the market, while at the same time buyers would start to push back at sky-high prices. It didn't happen. Instead, housing inventory fell even further. At this point last year, housing inventory on Zillow.com was 26% below pre-pandemic levels. Now it's 42% below that level.
The lack of inventory isn't isolated to a few hot markets. It's a nationwide problem.
Coming out of the Great Recession, homebuilders, who were in financial distress, played it conservative. We went from 25 million homes built in 2005 to just 9.4 million in 2012. While it did begin to rebound in the last decade, it still wasn't enough to match the wave of millennials who are ready to buy their first home. That's causing inventory to dry up everywhere from California to West Virginia.
But the inventory problem—and the red-hot housing market—could begin to ease as we head into 2023. At least that's what real estate forecasts show. While Fannie Mae forecasts home prices will still shoot up 11.2% in 2022, it predicts just a 4.2% bounce in 2023. The reason? Industry insiders hope that the combination of sky-high home prices and rising mortgage rates will help to rein in the market.
When asked what the housing market will look like next year, Bachman responded with a question of her own.
"How high do [home] prices get, and how high do [mortgage] rates get through this year?" she asked.
The higher rates and prices go in 2022, she says, the more buyer pushback we should see next year.