Are We Heading for a Housing Market Crash?

With Halloween approaching, it seems like there are many things coming up to scare us: prices and rates and market shift, oh my! With the real estate market and economy going through changes, how do we sift through the jump scares and find the facts? If you’ve been worried about the housing market crashing, this is the article for you.

In Flagstaff, home prices increased by 16% in 2020 and 24% in 2019. Why did home prices increase by unprecedented amounts? Following the quarantine, the country went through a collective life change and started to value where they live more, especially as remote work grew in necessity and popularity. Currently, Flagstaff home prices are projected to be up 18% this year. However, it is predicted that home prices will start to regulate toward the average increase for residential single-family homes in 2023.

What you will notice in our current market is that homes are staying on the market longer than they were last year. Supply and demand is what drives home prices. When there are more homes (supply) than there are active buyers (demand), home prices go down. Inversely, thinking back to 2020, there were many active buyers and not enough homes to go around. In that case, we saw multiple offers and buyers paying more than appraisal prices. This drew many sellers to place their home on the market in the hopes of taking advantage of the high sales prices.

But, are we back to 2008? Should we be anticipating a housing crash? There are key differences between now and 2008. Nationally in 2008, demand for homes dropped dramatically, with supply being four times the amount that we have now in 2022. In Flagstaff, compared to 2008, inventory has increased by 927, to 1,021 homes, but the number of households has increased from 46,715 to 52,653. With an increase of more than 6,000 households in Flagstaff, having an additional 100 homes available still means there are too many buyers chasing too few houses.

As of September, the Federal Reserve Board (the Fed) has increased their policy rates by 0.75% and has indicated that they plan to continue raising rates to tame inflation. While the Fed controls the federal funds rate and discount rate, the market forces have influence on mortgage rates, too. In anticipation of the Fed changes, mortgage rates have already risen. While we’re not looking at 17% interest rates like in the 80s, it is changing the buyer pool, including, but not limited to, purchasing power, being more particular in home choice, and not being willing to pay 2020 prices in 2022.

If you are looking to sell your home or buy your next one, working with a real estate professional who can guide you through the process and keep you informed about changes to the market will be vital to your success. FBN

By Alana Bateman

Alana Bateman is a REALTOR® at Russ Lyon Sotheby’s International Realty. She can be reached at Alana.Bateman@RussLyon.com or 520-301-8337.