In the last week, we learned that home sales have dropped for nine months in a row which is extremely concerning. The Federal Reserve decided to aggressively start hiking interest rates making it obvious for the housing market in 2023 to crash.
In the ninth month i.e. in October home sales declined furthermore, keeping the buyers on side-lines because of the higher interest rates and surging inflation.
National Association of Realtors confirms that sales of previously owned homes dropped by 5.9% from September to October.
As per Zero Hedge, U.S. home sales in October 2021 were much higher, which declined by 28.4% in October 2022. This monthly decline pushed the year-over-year drop in existing home sales to -28.4% – its worst level since 2008!
All this decline is very much dependent on various factors:
Changes in interest rates as per Federal Reserves
There’s no doubt that interest rates are going to rise more than they currently have. The Federal Reserve has already made it clear. The economist Dallas Fed has already predicted the fall in U.S. home prices by almost 20% which will trigger a “severe” price correction, according to research from the Federal Reserve Bank of Dallas.
This fall in rate is as much as 20% mortgage rates in two decades.
It is surely going to have a suicidal effect on the current housing market situation.
Increased Unemployment
Many organisations and large corporations have made announcement for lay off which will rise the unemployment as they increase the interest rates even further.
Carvana already forms a part of the list with their laying off about 1500 people or 8% of the employees. This is further followed by a weakened resale vehicle market and the company’s long-term trajectory as per information obtained by CNBC’s Scott Wapner.
If the Fed continues to raise rates, eventually millions of American could lose their jobs. The email from Carvana CEO Ernie Garcia, titled “Today is a hard day,” cites economic headwinds including higher financing costs and delayed car purchasing. He says the company “failed to accurately predict how this would all play out and the impact it would have on our business.”
The sudden rise in interest rate and unemployment shall give further rise to home owners being unable to pay their mortgages in turn resulting in accumulation of burden of paying back on them. This would have a ripple effect on Wall street which will be quite devastating.
Upside-Down Mortgage
An upside-down mortgage, is a home loan with a higher principal than the home is worth. This happens when property values fall but you still need to repay the original balance of your loan.
As per study in last economic downfall large number of people walked away from mortgages knowing the fact that they won’t be able to pay what they owe. If same thing were to happen again, the lenders will not have anyone to lend. Americans would eventually be owing too much on their homes than they currently are, if the prices keep increasing continuously by 20%.
It is quite evident that we are heading into a very serious economic downturn so let us hope that such a scenario does not materialize.
Pushing interest and flooding system with money is the largest bubble created by Federal Reserve which is now trying to burst it yet, the months ahead are going to be extraordinarily painful for the housing market.
The falling of U.S. LEI for 8th consecutive month can result in recession said the senior director of economic research at the conference board.
We very well know that it was possible to adopt different strategy and policy to avoid the crash but it did not happen leading to historic downfall of real estate sector. Many Americans are dealing with worst economic crisis. It is going to be quite difficult for them to further deal with such financial positions, when things will get worst millions will not be able to pay their bills.
It is unfortunate that many of them can even lose their homes even though they may have purchased it at the peak of the market making it difficult to even break through the basic purchase amount.
