Unlike the stock market, where consumers are aware of and accept the risk that prices will fall from time to time, many people who purchase a home do not believe that the value of their home will plummet soon.
Compared to other asset types, the housing sector has typically been unaffected by price bubbles. It could be due to the high transaction costs of buying a home and the cost of owning and maintaining a home, all of which discourage speculative behavior.
However, property markets do occasionally experience moments of irrational exuberance, with prices rising rapidly before returning to normal.
When the property price consistently increases year-on-year, it indicates the possibility of an impending housing market correction. Home appreciation and the real estate sales market are affected when home values level out or plateau.
When we start to see lower mortgages expanding in the market, it’s another warning that a housing crash is on the way. Higher mortgages could create a housing catastrophe if lenders relax underwriting credit standards and riskier mortgage requirements.
Interest rates could indicate that the housing market can collapse. Lenders compete with one another by leveraging current interest rates, among other things, to attract buyers. Since they use similar variables to determine interest rates, lenders’ rates will often coincide.
A high absorption rate indicates that the supply of available houses is fast shrinking, implying that homeowners will sell their homes in a shorter time frame. An absorption rate of less than 15% indicates a buyer’s market, in which homes are not selling as quickly.