The world we currently live in is deeply capitalized, so everything is measured in terms of money. If you would come to think of it, your hard work is only estimated only in terms of how much money you can create in your 9-5 work. Although this sounds a bit harsh, this is reality.
However, did you know that 90% of millionaires get into where they are right now through owning real estate? Billionaire Andrew Carnegie said so. According to studies, no other industry has created more millionaires than real estate because it is the most straightforward way to amass wealth.
Back in 2000, the average home price was only about $119,600, but it rose to $374,900 after two decades. So, individuals who took up a 30-year-old mortgage to buy a $300k to $400k house have become millionaires.
House prices don’t just beat inflation but climb up significantly. A housing crash is horrible, but it doesn’t affect long-term investors since the prices will eventually bounce back and keep growing in value.
Since the wild emergence of coronavirus in March 2020, the real estate market has been through a roller coaster ride. The prices have risen by 25%, making others think of the upcoming housing bubble that can burst anytime soon. But not everyone agrees with this opinion.
True enough, the boom will stop sooner or later. It will not crash since the rise this time is nothing like the crash that we had seen in 2008— there’s no predatory lending, and most mortgages are presented to responsible buyers.
There are many reasons why the housing market may not crash. But take a closer look at why the housing crash is not happening, at least this 2022.
Homes Short Buyer of Buyer Demand
One of the reasons house prices grew so much was the short supply when there was high demand. Because of the restrictions bought by the Covid-19 pandemic, construction of houses were put into hiatus and plans to build new ones were halted.
Aside from the restrictions of the pandemic, all supply chain has been damaged. Some businesses were completely shut down, and employees couldn’t get back to factories, while the demand remained rising due to the economical mortgage rates.
There’s a great amount of money chasing houses, which is why house prices climb up to crazy levels. If you are asking, why aren’t people building up houses that can meet the market’s demand?
First, because of the pandemic. Secondly, the 2008 crash slowed down the industry, and there’s no way to push it up instantly, especially when a virus is rampaging and wreaking havoc around.
In 2008, there was an oversupply of houses, forcing sellers to lower prices just to find a buyer. We can now see a different set of ball games in the real estate industry.
Although the astronomical demand has already finished yet, even if prices decline, there’s an abundant number of people who are willingly ready to purchase a house.
Experts are eyeing two tactics to flee from this situation. The price would either stabilize and remain as they are in the next few years or slightly decline but bounce back speedily because the interest rates are low enough to stir up demand.
The Fed chairman has made a whiff that they have no plans of interest rates anytime soon, which is nothing new since they have done this before after the great depression in 2008. They kept low-interest rates for seven years! So, it is highly possible that they won’t upsurge the rates in the next two to three years.
It is also necessary to know the difference between boom and bubble. During a boom, prices increase dramatically, especially when there is a limited supply of a particular asset in the market. However, a boom doesn’t necessarily mean a bubble, although there’s a possibility that it can turn into it.
What we are seeing now in today’s housing economy doesn’t appear to be like a bubble, but we can’t neglect the fact that many Americans are still under the forbearance program. A great number of them won’t be able to keep up with their mortgage payments, possibly leading to millions of houses for sale in the market, and so home prices will fall. But some gathered data says otherwise.
During the peak of the forbearance program, 9.3 million Americans were in forbearance. Thus, without the help of the program, the housing market would have been crushed a long time ago. Yet the figures we have now are way smaller than what we have before.
As reported by Mortgage Bankers Association, about 1.7 million owners remain on some type of mortgage forbearance plan. If these people face foreclosure or simply opt to sell instead of restarting payments, it could increase the value of houses for sale.
The mortgages of pre-and post-crash are quite different. Before the crash, banks were tightly regulated and only approved loans of people with good standing— those who were responsible enough not to default and keep up their payments.
Hypothetically, even if these people default their mortgages when the forbearance program ends, that will only bring an increase of about 11% in inventory, whereas the low-interest rates will drive people to purchase those houses.
Bidding wars won’t be as widespread as it was the previous year when some people would overpay millions of dollars just to get themselves the property and outbid everyone else. This might bring a temporary sense of fulfillment and a quick boost in ego, but this isn’t a smart move since properties are less likely to appreciate their value in the next few years.
The government is doing everything it can to extend the forbearance program and prevent homeowners from defaulting, even if it means advancing the program until 2022.
Will there actually be a housing crash this 2022?
No one knows what the future holds, and the talks about the upcoming crash could actually come to life. Nevertheless, many professionals believe that the crash is yet to happen in 2022.
