In the last post, we explained why we do not think the housing market is going to crash in 2022. However, if it were to crash what can we watch out for as indicators of an upcoming dip? More importantly, are there any of those signs currently occurring?
The price of homes is determined by supply and demand, different variables are going to affect supply and demand differently. Each of those variables is going to affect each other also. The big player in today’s housing market is the skyrocketing interest rates. During the pandemic, the Federal Reserve turned on the printing presses by bringing the interest rates down to zero. As can be expected by decreasing the price of money the price of a lot of assets went up. Because cheaper loan payments mean people could afford larger loans, thus they paid more for things like homes, stocks, businesses, and other real estate-based assets. As this money flowed through different industries, job wages increased, and many Americans had a huge boost in equity from their homes and investments in stocks, 401k, etc. Americans felt comfortable enough for spending to increase in other areas which lead to pricing going up across the board.