It looks like the housing correction is here and there is no doubt as to the impact on the prices and inventory. In April and May new home sales fell almost 20% to their lowest levels in 2 years. At the same time inventories are rising while 20% of the listings currently on the market have cut their prices. To make matters worse, applications for mortgages continue to fall meaning less potential buyers in the market.
Experts are now saying the market has changed with interest rates rising and demand for new loans and houses dropping. Home sales are falling sharply, demand is coming down quickly, with price growth flat and prices expected to be dropping in a number of markets. Many experts expect price growth over the next 12 months to remain at 0 nationwide, with many overvalued markets falling. If that happens it will be the worst stretch for the housing market since 2012.
Interest rates are being raised to slow down inflation. This slows down the housing market, but it is also designed to slow down new construction. By slowing down new construction the market will be given a chance to correct prices for lumber and steel and other supplies that have grown substantially 0over the last 2 years.
If these trends continue then it will have to spur increased foreclosure activity as many homeowners who have some equity will not be able to hang on as their equity decreases every day. If this continues then many overvalued markets, especially those throughout Florida could see price drops anywhere from 5-20%. If prices drop and foreclosures start up again it will interesting to see what the Fed does with interest rates. The market seems to be more solidly controlled by the Fed and the interest rates they set. So, if foreclosures start up and prices drop too much the Fed could very well lower interest rates to spur more loans and more buying which will decrease supply and increase demand. There are a lot of unknowns out there right now but with household debt climbing to all time highs, housing prices flattening or dropping, and inflation still out there at some point the bigger market correction will take place in foreclosure and bankruptcy court.