It appears the housing boom in America has come to an end. America is not experiencing a housing crash like in 2008, but the housing market is in a correction phase. Yet, there is no need for concern. A softening housing market can present great buying opportunities for home buyers. Let’s take a closer look at what is happening to the housing market and how it can benefit homebuyers.
What is a housing correction?
The recent housing boom resulted in skyrocketing housing prices that outpaced household incomes. A housing correction occurs when rising home prices gradually go down to normal levels. Home buying and selling also return to normal levels. As a result, homes are staying on the market longer, and home buyers may see fewer bidding wars.
According to Moody’s Analytics chief economist Mark Zandi, many parts of America are already in a housing correction. There is a drop in new home sales, home listings, mortgage applications, and existing home sales. Housing inventory is still rising, but there is a rise in the number of home listings experiencing price cuts.
These changes are not seasonal or the result of a soft one or two months. Instead, Zandi sees this drop in the housing market as a trend and does not expect any growth in the U.S. housing market over the next year. He says the U.S. is in a housing correction partly because of the rising interest rates that make getting a mortgage more expensive.
Overvalued Housing Markets
Despite the housing correction, 96% of the 392 largest housing markets in the U.S. have overvalued housing prices. Overvalued housing prices mean the average housing price in an area is above what the average income can support. 149 of the 392 largest housing markets are overvalued by 25% or more. Therefore, they can expect to experience the largest drop in home prices. Zandi says most of these 149 housing markets are in the Southwest, Mountain West, and the Deep South.
Taking Advantage of a Housing Correction
A housing correction can be an excellent time to purchase a home. Mark Zandi does not believe the housing correction will be nationwide. Still, it will have more of an effect on some cities and regions than others. Yet, he does see the housing market correction causing home prices to drop. As a result, low-income people may find it easier to save money for a down payment or qualify for a mortgage.
Sellers may not benefit as much from a slowing housing market. They will need to lower their asking prices to make their homes more affordable. These sellers will not get as much money for their homes, but they can attract more buyers with the lower asking price. They will be able to sell their homes faster without spending too much time on the market.