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10 Signs When a Housing Market is in Decline

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Real estate prices like the weather and throughout history there have been upswings and low points. One of the first recorded housing crashes was the Panic of 1837, which started from lending money on spec and outrageously priced land that couldn't stay that high. A more recent example was the housing bubble in 2008. It began in 2006 when homeowners started seeing their adjustable-rate mortgages rising. Then, two years later they increased substantially, even up to 60%. After this happened, houses went into foreclosure, and many lenders declared bankruptcy. Even though it may be tempting to buy the first house you see because it's perfect, it's best to be wary, much like the phrase "if it seems too good to be true." However, before you wonder whether or not you're making a mistake, it's best to watch trends and do a little homework. Additionally, look at this list, the 10 signs when a housing market declines.

10. Not a buyers market

One of the surest signs the housing market is on a decline is when people stop buying. Many factors, including the pandemic, affect this. According to Norada Real Estate, even though mortgages substantially dropped, they expect a housing decline estimating sales over 7 million will drop in 2021 and 2022.

9. Rise in costs

When housing markets decline, mortgage prices go up. Current trends indicate that there will be an increase in mortgages which will deter people from buying a house. The rise in costs will also stop many people from trying to refinance their homes.

8. Is it a dream?

Some people find a dream home and immediately decide it's the one, make an offer, and hang curtains within a month. However, others will wait and consider numerous options. When the housing market is on a decline, many homes sit on the market for longer than the average number of days, just over forty. However, it's best not to fear the worst in the housing market because real estate ebbs and flows like the seasons. However, if you see a long-standing trend, it's likely the market is on the decline.

7. Home sweet home

One of the most exciting things is buying your first house. There's something about finding that spot and feeling a connection. Better still, you have an investment in your future and are no longer just paying rent. However, when a real estate decline happens, there is a dip in first-time home buyers. Recently, the number dropped to an all-time low, 28%.

6. What type of market?

When you hear buyers or seller's markets, it immediately tells you who the real estate market is favoring, and you know when it's time to list your property or perhaps make the plunge and purchase a home. However, if the market is beginning to decline, neither seller nor buyer will farewell. For example, the housing supply has been down 1.27 million units or 13% since September. This means fewer houses are available for prospective buyers, and people are hesitant to list their homes because they won't get total market value.

5. Price and value

How much you can get out of your home is another factor that must be considered when purchasing your home as well as how much you're willing to offer. If there is a decline, the price of the houses will go down. However, the scarcity creates a bidding war, so there's a chance you'll pay more for something that may have been 50 to 100 thousand less a year ago. According to Norada, there was a 22.7% drop in housing prices in the last year. Yet, the sales also decreased by half from a year ago.

4. Checking out the listings

While looking at houses on your favorite site like Zillow or Redfin, you may notice not only has a place been on the market for a substantial amount of time, but it's also had numerous price drops. When you see something like this, it's a sure sign the housing market is declining because people are incredibly desperate to sell their homes. So, if you notice this, you may want to consider waiting a little longer to see if things level out.

3. Pulling equity

Sometimes, the housing market isn't only about buying and selling. When prices seem too good to be true many start to pull unnecessary equity out of their homes because rates are low; when this happens, people incur more debt, and these risky moves don't pay off. According to Business Insider, recently, people pulled over half a billion dollars in equity of their homes. This is the most significant surge since 2007. Much like any other surge, a steady increase is likely to lead to a severe decline.

2. Pop the bubble

During a housing bubble, people can increase the prices of their houses, and even with the rising costs, buyers are still willing to pay the overages. Yet, when the seller prices start to plateau, the housing market is likely on the decline. Real Estate is always about finding the sweet spot, and it's a constantly changing industry. It's best to look at trends and follow patterns for a bit before deciding if now is the best time to buy a house.

1. Lower doesn't mean better

According to The Ascent, one of the surest signs the real estate market is on a decline is when the Federal Reserve keeps the prime rate low. Although this does create somewhat of a housing increase, many consumers don't feel any added interest in purchasing a home. Some feel the opposite. Perhaps it's because the low prime rate often corresponds with a loss of jobs or a declining economy, and people don't want to make risky investments they can't afford.

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Allen Lee

Written by Allen Lee

Allen Lee is a Toronto-based freelance writer who studied business in school but has since turned to other pursuits. He spends more time than is perhaps wise with his eyes fixed on a screen either reading history books, keeping up with international news, or playing the latest releases on the Steam platform, which serve as the subject matter for much of his writing output. Currently, Lee is practicing the smidgen of Chinese that he picked up while visiting the Chinese mainland in hopes of someday being able to read certain historical texts in their original language.

Read more posts by Allen Lee

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