House Prices Won’t Crash
The general lack of inventory in the US housing market means we are unlikely to see a crash in house prices. Unlike the 2008 crash, the factors are very different this time around. Banks have not extended credit to financially weak buyers. Also, there’s no relief in the rental market, where rents are up due to inflation and low inventory. Although interest rates are up, historically, they are still low. Certainly, compared to 2008, they are not much different.
Homeowners With Low-Rate Mortgages are Reluctant to Sell
Increasing rates could be offset if house prices significantly dropped, which doesn’t look like it will happen. Also, current homeowners might be reluctant to sell and sacrifice their low-rate mortgage to buy a home at a higher rate. So, if you’re expecting the market to crash with a deluge of foreclosures, you might be in for a long wait.
In Many Markets, House Prices will Continue to Grow
We’ve experienced exponential growth over the last few years in real estate with double digits percentage increases in home prices driven up by inflation and low inventory. Most people agree that long term, that’s not necessarily a good thing, thus the Fed's rationale for increasing rates. However, high rates won’t translate to falling home prices in many markets, just less explosive growth.
Housing analytics company CoreLogic predicts an annual increase of 5% from May 2022 to May 2023, and while some markets might deviate from that, don’t expect the housing market to fall off a cliff. Corelogic predicts that the New York Tri-State area has a low probability of seeing a drop in home prices.
There's a Lot to Be Said For Locking in a Fixed Monthly Payment
Higher rates will undoubtedly filter out some buyers from the market, meaning bidding wars and over ask offers might come to an end. If this is the case, you might end up getting a better deal than you would have a few months ago, although you would be paying a higher rate for it. Should rates come down again in the future, you could refinance to a lower rate — though that is a big “if” and unlikely in the short term.
With a housing crash not imminent, buying into the housing market at the current rate and seeing a conventional 4-5% annual growth all comes down to your finances. If you can afford the mortgage payment, buying is cheaper than renting in most markets, especially if you plan to be in the home for a long time and need to be in a specific location for work or family reasons. At least buying at a fixed rate guarantees your monthly payment won’t increase, which cannot be said if you choose to rent.
