Will The Housing Market Crash In 2022

For the past year, we all have been complaining  about how house pricing have been rising  faster than ever. Every single month, we had a new record. What happened over the last year or  so was something unbelievable. People would stand in lines to be able to have a chance to bid for a  house. I am not talking about being able to buy but just having an opportunity to fight for it.  People paid 10, 20, or 30 percent over the asking price just to be  the one who is going to buy that house.

Will The Housing Market Crash In 2022

However, that has changed in the last few months.  The market seems like it has reached its peak, and it doesn't seem like it's going to rise as  it did before. In April, Realtor.com data showed prices on active home listings up a whopping 17.2%  compared to a year prior. In October, that bump declined considerably, falling to just 8.6%. That  doesn't mean prices are about to fall. 

But that definitely indicates to the fact that they aren't growing like they used to. Some people are worried about a potential crash; others are calming us down by saying prices will  keep rising but not at that pace. Whatever opinion you are looking for, it does exist out there. But  what we want to find out are the facts because only based on them can we have a clear image  of what's happening and what could potentially happen. Real estate is such a market that it  affects everyone and not only homeowners. 

That includes investors, renters, and so on. But the slow down in prices was expected. We all knew that was going to happen. It was  not a matter of if but rather when. So whoever ripped the benefit of this housing rollercoaster  is smart because we aren't going to see anything like this in the coming future. However,  it is still impossible to predict the market because even the Almighty algorithm, which has  all the data you ever need to predict the market, couldn't make it. Yes, I am talking about Zillow.  

If you haven't been living under the rock, you probably heard about the disaster that  Zillow went through by trying to use its data to rip the market, but their plan backfired,  and Zillow's stock is crashing down. In the last few weeks, at the time of this script,  the stock has plunged by over 46 percent. That's literally worse than what happened  during march 2020. Ark Invest, sold its entire portfolio of Zillow stocks. Yes, it's that bad. 

But to be honest, Zillow had a rough year. Just take a look at their stock  graph. Although judging by the housing market, it should have had a great year. Anyways, since Zillow has all of this data, it tried to predict accurately future home prices,  so it purchased thousands of homes. More than 14,000 homes in just six months.  

It makes sense because Zillow literally has more data than anyone else, but the plan backfired.  Zillow had overspent and was sitting on massive losses in the months to come. That resulted in a  combined loss of 550 million dollars and the end of a business that had been rapidly growing — the  layoffs will pare 25% of Zillow's entire staff. The board decided to shut off the project. So when it comes to housing projections, take them with a grand of salt because  this market is literally uncontrollable. Anything could happen. But what is certain for sure is that  getting a mortgage at a super low rate is a great deal. Mortgage rates peaked at around 5 percent  in 2018 and reached their lowest point in January 2021.

 Just to give you an idea,  how much would a single make in your final house price. For the sake of example, let's  take a half-million-dollar house for a 30-year mortgage with 3 and 4 percent mortgage rates  with a 20 percent downpayment. Of course, there are many other factors that influence the price  of a house, such as property taxes, insurance, and so on but let's take those factors out of  the equation. With a 4 percent mortgage rate and a 20 percent downpayment, that 500K dollar house  would amount to 859K dollars while at 3 percent, the total amount would equal to 758K dollars.  

A single percentage in this example equals to over 100K dollars. That's a pretty good amount  of money. Especially in the long run, it would make a real difference. Especially if we count  the opportunity cost but we won't do the here. That's why when the mortgage rates dropped to  their bare minimum, people rushed to secure a mortgage at that rate because  even if they slightly over pay for a house, they will still win since their mortgage rate  cover it over the long run. Especially if you factor in the fact that  house prices generally rise over the long term, either way, you won't lose. 

However, that astronomical demand led to the highest price increase in home price  in recent history. At some point, prices began to rise so much that even a low mortgage rate  wouldn't compensate for it. I guess that's exactly what has been happening lately. 

Imagine for a moment when you have that kind of demand, but there is still a  shortage of homes in the market?

It's not easy to build more homes, especially if you don't have the infrastructure in place.  So, according to be basic laws of supply and demand, when demand rises while supply  stays the same, the price increases. But what if the supply drops as well.  When the pandemic broke out, the future seemed so unpredictable, even the stock market crashed.  No one knew how to deal with this virus! We had no idea when the vaccine would be ready, so a  lot of people felt hesitant to sell their homes. 

Letting people to get into your house to check it  out would create a risk of getting the virus, so even those who were planning to sell postponed it,  which drove the price higher and higher. On top of that, when you see the value of your house  rising so rapidly, the desire to sell it now instantly disappears. Why sell it now when you  can sell it at a much higher price 6 months or a year later? That further diminished the supply of  homes in the market, creating a bigger shortage.

We have already made a few videos about the 2008  crash, and if you take a look at the factors that caused the great recession, you won't find any of  them in the current soaring market. We don't have subprime mortgages, we don't have fake  AAA ratings to junk loans, and the industry is pretty regulated. Although the number of people  who took portages did significantly increase due to the reasons we have explored earlier,  most of them had good enough credit scores to keep up with their mortgage payments.  

Will house prices keep rising?

 Probably yes, but only time will tell. However,  we won't see anything like we have seen in the last year or so in the coming future.  But that's just one prediction out of many. When you are buying a house, you shouldn't concern  yourself with short-term ups and downs. When you are taking a mortgage, you aren't taking it for 2,  3, or 5 years but for 30 years. You have no idea how many crashes and ups are going to happen  during that period. Median Home prices 30 years ago were around 100K dollars. Today  it's 375K dollars. So 5, 10 or 15 percent crash wouldn't mean much in the long!  Of course, it's better if you can buy right there at the bottom. However, even if you don't,  it doesn't matter. You are still safe. Even after the 2008 crash, home prices rose back to the  pre-crisis level in 2014 and are much higher now.

That's the mentality you should use  when you're buying a house and not a crypto mentality where prices can shoot through the  roof today and crash the next day. The real estate market is also old as civilization.  Keep in mind that it was not just real estate that soared that much. We had huge inflation overall.  Asset prices across all sectors have dramatically risen, so it's difficult  to come to a conclusion that prices might crash in the coming future. What happened  in the last two years is more like a boom, and we might be at the end of it, or it might  last for a few more years. Only time will tell.

Meanwhile, you should learn how to take advantage  out of this boom. You might need a fortune to get into real estate, but you don't need much if you  are getting into the stock market. 

Thank You !!!

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