According to Moody's, a US real estate market correction is expected, but a collapse is unlikely

According to Moody's, a US real estate market correction is expected, but a collapse is unlikely

High interest rates on mortgages have resulted in declining house prices as a large number of potential home buyers have decided to hold off on purchasing a home because of severely disadvantageous loan conditions.

This trend is especially strong in "exhausted" markets, such as Northeast Florida, Phoenix, Tucson in Arizona, South Carolina, and North Carolina states, and Boise in Idaho.

Mark Zandi, chief economist at Moody’s, expressed this opinion and was referred to by Bloomberg. Zandi believes that a low number of loan defaults and panic home sales will keep the market from a dramatic fall. Although a correction is almost unavoidable.

Drawing parallels to the Great Recession of 2007-2009, Zandi points out that rates of vacant dwellings are at historic lows today, unlike the pre-crisis highs of the mid-2000s. Most loans are classic 15- or 30-year loans with fixed rates. There are no unhealthy mortgage-backed securities.

According to the expert, there is also a poor number of speculative activities and investors involved in property flipping in the country's markets, which gives confidence to the forecast. These transactions have become especially dangerous because of low interest rates and short supply on the market during the pandemic and right after it. It led to a rapid growth in prices for all types of housing units.

From the beginning of the year till May, the key mortgage rate has already increased from 3% to 6%. Despite the fact that the rate hike was intended to combat rising inflation, the Fed intends to keep raising rates on a regular basis until the end of the year.

According to the Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, the largest mortgage agency in America, the interest rate on a 30-year fixed-rate loan has already reached 5.81 points at the end of May. With the anticipated declining number of buyers who intended to enter the market, one should expect a cooling of the global and local indicators.

But so far, prices are still growing. So, at the end of May, the median price of houses sold in a month was about $407,600. It is 14.8% higher than in May 2021.

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