Washington — In late May, Elon Musk, owner of Tesla and Twitter, said that "commercial property prices are falling rapidly, and house prices will follow."
This has led to suspicion among homeowners and those wishing to buy a new home for the first time in their lives.
Over the past two years, the consequences of the outbreak of COVID-19 have prompted many companies and shops to close their doors, especially with the spread of remote work.
The real estate market is witnessing several overlapping phenomena that affect each other in a way that the American market has never seen before.
House prices rose to new record highs, while interest rates on mortgage loans continued to rise to 7%, slowing the housing market, while rents saw record highs.
In 2022, for the first time in history, the average U.S. rent exceeded $<>,<> a month (Getty Images)
Slowness in real estate markets. however
Studies have shown that over the past 40 years, the housing supply has not kept pace with demand, resulting in housing shortages of between two million and 6 million homes. Low supply is one of the main reasons for the dramatic rise in house prices.
In 2022, for the first time in history, the nationwide average rent exceeded $30,<> per month, and figures show that nearly half of all tenants are "burdened by the cost of housing," spending more than <>% of their total income on rent.
While the housing market is already calming the reaction, the current slowdown does not look like most real estate downturns. Home sales have fallen, and inventories of units for sale have also fallen sharply.
Homeowners who fixed mortgage rates at 3% two years ago are refusing to sell now that interest rates rise to 7%, yet this correction would not be like a total collapse of property prices during the Great Recession, when some housing markets saw values fall by 30%.
Will the housing market collapse?
From 2005 to 2007, the U.S. real estate market experienced great confusion, followed by a devaluation of homes with the onset of the 2008 financial crisis, a bursting real estate bubble, and the U.S. economy plunged into the clutches of the deepest economic crisis since the Great Depression.
In recent months, a number of economic commentators have expressed pessimism, as mortgage rates (inability to pay mortgage payments) and potential recessions continue to rise, coinciding with record rent hikes across US states. This has led landlords to ask a familiar question: Is the housing market on the verge of collapse?
Home sales fell 3.4% from March to April 2023 (Getty Images)
Main Housing Market Statistics
Home sales fell 3.4% from March to April 2023, says the National Association of Realtors. The average U.S.-wide home sale price in April was $388,1, down 7.<>% year-on-year.
April itself also saw a supply of housing stock covering only 2.9 months, far short of the 6-month period needed for a healthy and balanced market.
Housing economists agree that prices may fall further, but the decline will not be as severe as the decline seen by homeowners during the 2009 recession.
One clear difference between the 2009 recession and what is happening now is that homeowners' personal balance sheets are much stronger today than they were 15 years ago.
A typical homeowner with a mortgage has excellent credit, a high percentage of home equity, and a fixed rate mortgage that is closed at a rate of well below 5%. So the foreclosure crisis is not in sight.
Moreover, market players have been cautious about the pace of construction, and the result has been a constant shortage of homes for sale.
There is simply not enough inventory, and even with no strong supply, a repeat 30% price drop is highly unlikely.
Reasons why the U.S. real estate market is far from crashing
Housing economists point to several compelling reasons why there is no imminent collapse, including:
Low real estate inventory
The National Association of Realtors maintains that there is no abundance of homes available for purchase. This ongoing shortage of inventory explains why buyers insist on bidding on prices.
This shortfall also suggests that the supply-demand equation simply will not allow prices to collapse in the near future.
Studies have shown that over the past 40 years, the supply of housing has not kept pace with demand (Getty Images)
Not building fast enough to meet demand
Homebuilders withdrew after the latest collapse in the 2008-2009 crisis, and did not fully raise construction rates to pre-2007 levels. Currently, they have no way to buy land and win procedural approvals quickly enough to meet the growing demand.
While they are building as much as they can, a repeat of over-construction as it was 15 years ago seems unlikely.
Demographic trends are creating new buyers
There is a strong demand for homes on many fronts, as many Americans who already own homes during the coronavirus pandemic have decided that they need more places, especially with the spread of the phenomenon of working from home.
There are the huge millennials, who are likely buyers for the coming years, and there is the young Hispanic immigrant category who are keen to own homes.
Lending standards remain strict
In 2007, "false loans" were highly available, as it was common for borrowers not to need to document their income and property.
Banks have offered mortgages to anyone regardless of credit history or down payment size.
Today, lenders impose strict standards on borrowers, and those who take out mortgages mostly enjoy excellent credit.