5 Big Reasons to Fear Housing Market Prices Will Fall

In many areas of the US, the housing bubble has shown little signs of deflating. However, one analyst believes it is unlikely to be a successful season and housing market prices have to fall.

Ian Shepherdson of Pantheon Macroeconomics, predicts that sales may start to fall significantly. According to his research note, existing-home sales are likely to decrease by roughly 25% from their February annual rate of 6.02 million to 4.5 million by summer’s end.

Shepherdson pointed to mortgage demand as evidence of this slowdown. Recent Mortgage Bankers Association data indicates a decline of more than 8% in home loan applications compared to last year.

Since most buyers rely on loans to make a large purchase, a drop in mortgage demand could predict a slowdown in home sales. Low affordability is probably to blame, so let’s consider these five reasons to fear a fall in housing market prices.

Reasons to Fear a Fall in Housing Market Prices

The Decline In Bank Lending

As a result of low liquidity, banks cut back on lending during the 2009 recession. Homeowners wanted low-interest-rate mortgages, but banks kept tightening lending criteria, making it harder to get a mortgage.



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Fluctuating Demand And Supply

Just as with goods and services, supply and demand influence home prices. There are buyers and sellers in every housing transaction, so a fluctuating supply of homes will affect prices.

Bidding wars are common during this time. In contrast, a buyer’s market occurs when the housing market is weak but the supply is plentiful. Oversupply often results in declining property prices and homes sitting on the market longer than sellers would like.

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