How A Historic Price Correction Will Impact The Real Estate Market
The housing market has been something of a frantic roller coaster ride as of late, and many buyers are waiting for it to slow down before hopping back on. According to CNBC, home sales decreased for nine months in a row in 2022. Between September and October alone, the rate of sales fell by 5.9%, per the National Association of Realtors. This is mainly due to the seemingly impossible situation buyers are faced with as soaring inflation and interest rates continue to rock the economy. For example, in October 2022, consumers were faced with average home prices of $379,100; that's 6.6% higher than they were in October 2021.
Now, it seems like the only thing buyers can do is wait until the real estate market becomes more favorable. "We probably... have to go through a correction to get back to that place," Fed Chair Jerome Powell explained to reporters in September 2022 (via Fortune). And in this case, it needs to be a historic correction at that. According to U.S. News and World Report, a price correction in the housing market is what happens when prices fall by as much as 10%. This can take anywhere from a couple of months to over a year. We'll explain exactly what this will look like for consumers as we head into 2023.
We may not see significant changes for another year
After dealing with overvalued homes on the market for months following the COVID-19 pandemic, buyers are now watching as prices slowly decrease to something more attainable, per Fortune. Since June, we have already seen a price drop of 2.4%, which is considered the second-largest correction in housing prices since World War II. "Houses were going up at an unsustainable fast level. So the deceleration in housing prices that we're seeing should help to bring prices more closely in line with rents and other housing market fundamentals," said Fed Chair Jerome Powell. "That is a good thing. For the longer term what we need is supply and demand to get better aligned so that housing prices go up at a reasonable level and at a reasonable pace and that people can afford houses again."
Powell added, "This difficult [housing] correction should put the housing market back into better balance." Be prepared for it to take a while, cautions Mark Zandi, chief economist at Moody's Analytics. He believes that consumers are unlikely to see home prices decrease significantly until about 2024. Timeline aside, the price correction has begun and is expected to bring back a much needed sense of normalcy to the real estate market.