To Crash or Not to Crash? A Mortgage Advisors Perspective
Is the real estate market going to crash? Are we headed for a major depression? It depends who you ask and who you listen to. Our newsfeed is polarizing and no one knows who to trust. All sides state facts but not all paint the entire image. I once had a statistics professor tell me, “You can prove or disprove anything you want with the inclusion or exclusion of statistics”. Most of the “experts” we see on cable news and social media have a political motivation or bias driving their conclusions. It’s up to us to sift through the garbage, use common sense and logic to come to our own conclusion.
These days it’s exponentially easy to get caught up with the devil in the details. My approach is to take a step back and look at the big picture. Here is my take on the current market and predictions for the future without getting caught up in minor details and technicalities.
There are millions of buyers looking to dip their toes in the water for the first time but are just waiting for the right time, the right price, and the right rates before they feel comfortable jumping in.
There are millions of homeowners that want to move but are stuck. They got locked into low interest rates with their debt-to-income ratio maxed out. With today’s interest rates many couldn’t afford to buy their own house again today.
How do I know this? I was there. I did the cash-outs, I did the purchases, I saw the DTI’s and personal finances. While the rates were increasing in 2022, I had daily conversations with customers explaining that “due to the interest rate increase you no longer qualify for a loan at X amount”.
Where do we go from here? Are rates going to drop back in the 2’s and 3’s? Are homes prices going to crash and burn? Are rates going to climb through the roof with the wars around the world? Is inflation going to drive building materials and existing homes to new heights?
To answer that question, you would need to get inside the minds of the leaders of our country. No leader wants to be remembered as the one in charge when the economy crashed or when inflation was rampant. It’s a delicate balancing act. So, what are they going to do to counter changes in the market?
If home values begin to crash, maybe they stimulate the market by dropping interest rates. Just enough to support the current market values but not too low or you wind up with rampant inflation.
Maybe they want to focus on getting new buyers into the market. Affordability for first time buyers is a huge topic of discussion. Incentives like grants to buy down interest rates for first time homebuyers or lowering down payment requirements could be an option. Lower the barrier to entry too much though and you end up with under qualified buyers that could cause issues down the road.
The actions and reactions of the federal reserve and politicians will be from a stance of maintaining, regardless of rhetoric. I don’t see a complete market crash in the future or rates back in the 2’s. Small peaks and valleys will emerge, but nothing compared to the 1920’s or 2008. Eventually mortgages in the 2’s and 3’s will be paid off or refinanced and the market will balance itself out. Regardless, the headlines will still read “The Sky is Falling” right to “Now is the Time to Buy”.
What do you think is going to happen?