Spring is a popular time for home buyers. However, one analyst believes it is unlikely to be a successful season. Founder and chief economist of Pantheon Macroeconomics, Ian Shepherdson, predicts that sales may fall significantly this year.
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 stated that the housing market is in the early stages of a decline.
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. Refinancing demand has also decreased, down nearly 50% compared to the previous 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.
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.
A healthy economy and low unemployment tend to increase home prices; Homebuyers are more confident about their jobs and are more prepared to take on mortgage debt.
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.
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.
Bid 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.