Published by REALTOR.com | April 25, 2023
The question on the minds of homebuyers, sellers, and homeowners is what is going to happen with home prices.
Does this sound disturbingly familiar? Skyrocketing home prices have very suddenly leveled off. Recession fears are swirling. The number of home sales has dropped. Is it 2006—the year that saw the ramp-up to America’s housing crash two years later—all over again?
Just like in the mid-2000s, experts are adamant that the correction in the housing market is simply that: a correction and not a catastrophe. Many news reports from early 2006, which often downplayed the risk of a severe housing crash, seem like they could be written about what’s happening today.
But back then, the pundits were wrong. We all know that a housing bubble burst, ushering in the Great Recession and taking down the global economy with it. Hindsight is 20/20.
So is the housing market in for a repeat performance? Or is this just some temporary pain for both buyers and sellers?
“Parallels can be drawn because of how quickly home prices have risen over the past few years,” says Yelena Maleyev, an economist at KPMG. “But that’s where the comparisons would end.”
Housing experts are quick to point out that the foundation of today’s housing market is stronger than it was in the mid-2000s. This time the downturn is due to higher mortgage interest rates, which rose rapidly from below 3% in 2021 to the high 6% range.
Today’s buyers have monthly mortgage payments that are basically double what they were just before the COVID-19 pandemic began. So many aren’t buying, or they’re unable to bid up prices like they did over the past few years.
But the most important difference between then and now is there are many more buyers than there are homes available this time around. The acute housing shortage will likely keep prices from falling off a cliff.
