We all know the story. The pandemic hit the world, leading to lower mortgage rates and a greater desire for people to have their own space. As a result, we all rushed to buy properties, causing one of the tightest property markets of recent years. But fast forward to more than two years later, and what’s happened?
Some figures suggest as many people as 75% regret their decision to buy, feeling they acted hastily based on pressure. So, could it be an ominous sign of a crash in housing market prices? Here are five reasons why that could be the case.
What Goes Up Must Come Down
A recent Zillow survey showed that 75% of recent housing market buyers regretted their decision to purchase a property during the pandemic. Why? Buyers felt they didn’t have enough time to weigh up their priorities and options.
Top reasons included realizing they chose the wrong location, unexpected issues missed when they skipped a home inspection, they have too long of a commute, or rushed into a purchase with an agent that wasn't right for them.
Many people felt cheated — Millennials especially thought they overpaid for their properties or didn’t get their money’s worth. Even though they themselves are to blame for many of the issues.
In their minds, the crazy market and steep competition put too much pressure on them to buy any house – at exorbitant prices – when they should have taken the time to make a more measured decision and find the right home for them.
Instead, they experienced what stock day traders often feel – the Fear of Missing Out. FOMO. Is it time for the inflated housing market prices to come down now that so many have realized the pressure cooker environment made them go crazy?
While it’s true with IPOs and stocks, the phrase “what goes up must come down” hasn’t proven valid for the housing market over recent years, despite what common sense would have predicted. Instead, prices rose during harsh economic conditions, unemployment, and more.
Yet the survey results suggest that things might finally be changing. So, is it time for the market to stabilize?
Lower Supply of New Housing Market Buyers
The most obvious link between the house-buying frenzy and falling prices is a reduction in potential buyers. Many people chose to buy houses during the pandemic and are no longer in the market or searching for properties.
As a result, surely there will be a lower number of people searching for homes. Demand should return to a typical point, and prices will either stabilize or drop.
The number of buyers is also likely to be low for other reasons. For example, real estate investors may be reluctant to get involved in the market amid the current uncertainty. At the same time, the cost of living crises and high mortgage rates make it challenging for first-time buyers to enter.
However, it’s unclear whether this will be enough to send prices plummeting, considering the low housing supply we still face.
Changes in Expectations
Why did people rush to buy houses during the pandemic in the first place? Along with the optimal conditions and low mortgage rates, people had the desire to own their own space.
Lockdown saw many end up more cramped, with less access to public spaces. That changed preferences and encouraged people to leave cities.
As a result, demand and prices for bigger houses in more rural areas increased. Fixer-uppers also saw a surge in popularity.
But now everything has opened up again, and things might be about to change, with regrets or new jobs bringing people back into the cities.
Demand and high prices could return to the city areas that were previously avoided, while prices decline on properties that seemed temporarily more desirable.
Will people disappointed with the homes they now own be keen to get out and search for a property they won’t regret? Apparently not, thanks to: Burnout.
Even socially distanced, during the height of the pandemic homebuying frenzy, countless buyers were making multiple offers, jockeying for prime position. Often times, offers escalated quickly, and people made offers on homes they weren’t comfortable with simply out of pure desperation.
It's no wonder they’re not thrilled about the prospect of going through all of that again.
Even those who weren’t involved in the experience directly might be reluctant to get involved after seeing the effects on people they know.
Changed External Conditions
It would be foolish to talk about real estate conditions and the possibility of falling prices without discussing what’s currently happening right now. Mortgage rates are rising, the cost of living is also increasing, and uncertainty is growing — all of this means that conditions are no longer so great for buying a house.
Suppose demand has already reduced due to the unhappy homeowners that are too burned out to buy another property. In that case, it’s set to fall even further from the number of people who may have been interested in purchasing a property but can no longer afford to do so.
Conditions are also likely to discourage home hunters that may have otherwise been willing to move again.
Which Way Will Things Go?
These are unprecedented times, and nowhere is that more clear than with the crazy real estate market in recent years. It would not be very smart to act as upon assumptions that are unproven.
Yet, given so many signs that prices might be finally heading downward, those on the fence about buying would probably be better off holding off for a while to see if prices do indeed decrease.
Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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Featured Image Credit: Pixabay.
Tim Thomas was born in Guildford and now lives near Southampton, the UK with his family. Tim started his career in the financial markets and has traded and invested in stocks, options, forex, futures, crypto, and real estate for over 20 years. His website, https://timthomas.co/, is dedicated to teaching swing trading strategies for profits, helping traders reach their wealth and financial freedom goals.