After booming for more than a year—with bidding wars sweeping through communities from coast to coast—the housing market is finally cooling off a bit.
But don’t mistake this for the start of a crash. This isn’t 2008.
Instead, the industry sees this recent softening as more of a return to normal. While home prices over the past 12 months are up a staggering 17.2%, CoreLogic, a real estate research firm, forecasts just a 3.2% appreciation coming in the next 12 months.
What’s driving this cooldown? Some of it is a result of would-be homebuyers simply balking at sky-high prices. But that’s not all: Seasonality appears to be coming back to the market. Historically, housing begins to slow down in the late summer as the start of school nears, and then returns in full force again in the spring.
“With the economy reopened and people back to traveling and visiting with friends and family, the housing fixation has diminished slightly,” Ali Wolf, chief economist at Zonda, a housing market research firm, tells Fortune. “That is why housing normally has a seasonal pattern. The uniqueness about the housing market in 2020 was that seasonality was notably absent: Buyers continued to home shop last year even during the traditionally slower times of the year.”
While prices over the past year ran up like they did before 2008, the dynamics at play in 2021 are nothing like that bubble. For a housing bust to occur there would likely need to be a supply glut. We’re currently at the opposite end of that spectrum, with housing inventory still near a 40-year low after falling by more than 50% during the pandemic. Not to mention, our nation is under-built by about 3.8 million single-family homes, according to Freddie Mac. Leading up to the 2008 bubble, annual homebuilding was around 30% higher than it is right now.
Additionally, demographics suggest that our low inventory will continue to be outmatched by homebuyer demand. As Fortune has previously reported, we’re in the middle of the five-year period during which the largest tranche of millennials, those born between 1989 and 1993, are hitting their thirties—the age when first-time homebuying really kicks into gear.
Still, there are some wild cards.
The COVID-19 recession saw mortgage rates plunge to historic lows. This created a huge mortgage savings for buyers and allowed them to stretch their budgets north. If inflation fears startle the Federal Reserve into raising rates sooner than expected, it would have a negative impact on the housing market. During the crisis, remote workers were also able to uproot themselves in pursuit of affordable real estate. If the end of the pandemic sees employers tighten their work-from-home policies, that could also pull steam out of the market.
Additionally, on Sept. 30 the mortgage forbearance program, which allows some borrowers to pause their payments, will end. There are still 1.75 million borrowers, representing 3.5% of U.S. mortgages, enrolled in the forbearance program. If those homeowners opt to sell rather than restart payments, that could cause inventory to rise.
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