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Can’t you get your head around the new situation in the current US real estate market? Don’t worry; you’re not the only one. Do you want to buy or invest in a property, but high mortgage rates, unaffordable real estate prices, and a terrifyingly low supply of homes hinder your headway on every corner? Can we expect a change in the form of a housing market correction, or the whole market will collapse? Join us as we try to find a helpful answer for whether you should be concerned by a possible real estate market correction!

Welcome to the roller coaster of economic phases and property prices!

Our economy and the real estate market are based on cycles and a chain of causality. Everything that’s presently in decline had a booming beginning. In short, global inflation, an upsurge in demand, and affordable mortgage rates triggered property prices to go haywire. In June 2022, the American housing market reached its zenith, with a median home sales price going above $420,000, setting a new record nationwide. No wonder a potential housing market correction was already preparing to make a grand entrance.

There’s but one reliable source of information on the market!

How do things stand in the second trimester of 2023? Should you buy a home now or wait till the correction is applied into practice? Should you sell your home under the price? Expert local real estate agents can address all your inquiries and more!

Re-live the past when the real estate market thrived in the States!

In recent years (until about the third quarter of 2022), the US housing market has experienced a phenomenal surge. Economic, demographic, and financial elements formed a perfect constellation for a booming market. Historically low interest rates were the most significant stimulus, as they encouraged borrowing advantageous home loans and made mortgages more affordable. Additionally, the economy was growing, the job market had risen from its ashes, and low unemployment rates boosted consumer confidence. As a result, homebuyer demand also increased.

 

Furthermore, the millennial (and the Gen Z) generation entered the housing market. As this demographic reached the homebuying age, their demand for housing intensified. Thus, they drove up prices in many urban centers. 

 

And let’s not forget the uninvited guest! The COVID-19 pandemic also influenced the market by creating fascinating relocation trends throughout America! It facilitated a preference shift towards suburban areas and larger homes with dedicated spaces for remote work and leisure activities. Single-family homes became the next best thing in the market!

Something dark has accompanied real estate success.

During the housing market's impressive growth, several warning signs have emerged. They foreshadowed potential vulnerabilities and suggested an imminent housing market correction. We’re enduring the aftereffects of these deficiencies in the present.

 

  • For starters, home prices have been growing at a breakneck pace in particular regions. (most notably, in the Midwest and Northeast and Midwest, while they fell behind in the West.) If this trend continues relentlessly, it could lead to an unsustainable bubble (like in 2008 and 2021), and an inevitable correction would ensue.

 

  • Second, real estate speculators joined the game in trending regional markets. They started buying up properties not for long-term residence but hoping to gain a quick buck. Such speculative activity can worsen price volatility. Also, house flippers who renovated and added value to homes made a more-than-decent return on investment. However, they involuntarily tampered with prices in the meantime.

 

  • Third, the demand for homes has outperformed supply in many areas. That’s why we now discuss a housing crisis and a limited inventory. A sudden change in market dynamics could result in an excess of homes for sale, triggering a downturn.
  • And lastly, buyers may be forced to take on larger mortgages as home prices rise. This could lead to higher debt-to-income ratios. A sudden shift in economic conditions could restrict borrowers’ financial ability to keep up with the mortgage and repay their loans.

Is there reason to be concerned about a market correction?

A housing market correction (a price drop of up to twenty percent) can bring advantages and disadvantages for the various real estate transaction players. However, before sellers would panic, they must understand the following essential aspects of price correction.

A market correction applies to regions and can balance the supply-demand equation.

We can’t speak about a nationwide phenomenon. The US housing market is varied and fragmented, with different regions experiencing differing degrees of growth and market conditions. For this reason, we can’t see a nationwide correction happening anytime soon, but localized or regional corrections are feasible.

 

How does the supply-demand inequality relate to housing correction? On the one hand, we have a persistent demand for housing, while, on the other hand, we suffer from limited supply. Under such circumstances, an impending real estate market correction will provide some level of price support. In seller’s markets, where demand continues to outstrip supply, any correction might be moderate rather than severe.

Homeownership is deeply embedded in American mentality and is secured by the economy.

We must also remember that the US economy will always support the housing market. The housing market will remain relatively stable if the economy remains rigid and flexible and unemployment rates stay low.

 

Homeownership has historically been a sound and unquestionable investment for many Americans. In fact, it is an integral part of the American Dream, providing stability over the long term. Despite potential short-term fluctuations, the housing market’s innate value endures. Moreover, it will prevail over any ordeal, whether recession, inflation, or correction.

Are we there yet?

Let’s point out a paradox! All reasonable indicators show that an essential real estate market correction should have occurred by now. Yet, property prices dropped slightly starting from July 2022 and stopped in January 2023 (based on the national median home sales price statistics.) Since then, the US housing market has been “lukewarm,” with sales decreasing substantially; people are waiting for inflation to end, better wages, and lower mortgage rates. 

 

We might experience a moderate housing market correction when these factors paralyze the market entirely. But it would be best if you weren’t alarmed because falling prices will benefit all parties concerned.

Final thoughts

The US housing market's recent impressive growth has nipped concerns about a potential housing market correction in the bud. The warning signs are real (for instance, the low supply of homes and too few new building projects) and should not be ignored. However, a universal concern over a nationwide housing market crisis or correction may not be warranted. If real estate volatility concerns you, we recommend closely monitoring regional changes, supply-demand dynamics, and interest and mortgage rate variations.


As with any investment, there are inherent risks. Sellers, homebuyers, and investors should be cautious and well-informed. Suppose you plan to enter the housing market with the best starter properties for investment. In that case, it would be best to assess your financial situation first! You must ensure you can weather potential downturns, inflations, or market corrections. Homeownership remains a reliable path to financial stability and growth only with wise decision-making and careful analysis of market conditions.

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