Is the Real Estate Market Going to Crash?

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Housing crashes, typically caused by a perfect storm of problems built up over time, are often unpredictable. What we know right now is that leading indicators show a strong economy and don’t support theories that the real estate market is on the edge of a downturn.

Where Are We?

The market has clearly started correcting over the past few months. Interest rates have risen, reducing affordability and dampening buyer demand. However, inventory is pushing above the anemic levels that fueled price growth, and now we have a more balanced market. This is not 2008, when home prices nationwide fell by 15 percent to 35 percent.

Historically, sellers adjust slowly to changing markets and price their homes higher with room for negotiation. Many price reductions do not indicate a market adjustment but rather overzealous sellers or inexperienced agents coming back down to true market value. So although inventory has increased, there is still probably a lack of quality and fairly priced homes.

Where Are We Heading?

Inventory naturally declines through Dec. 31 and picks up again in the spring. Since we ended 2018 with the highest inventory in years, it’s likely that this spring will see more homes on the market than in the recent past. Yes, coupled with rising interest rates, this may cause more pricing pressure. Don’t forget, though, that the economy is stronger now than it was before the Great Recession. We are seeing now that eager buyers and investors are jumping on the real estate opportunities they find.

For those that have recently purchased, the National Association of Realtors chief economist predicts price appreciation of about 3.1 percent in 2019 and 2.7 percent in 2020.

What Should You Do?

Buyers should focus on a long-term strategy and don’t overspend. Sellers should consider listing now before the peak levels of inventory hit this spring. Pricing is crucial so they should not go too high with their asks.

Lastly, be ready for opportunity. Most people miss the gifts of changing markets. Make a plan and execute when you see the opportunity.

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