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Prices falling in expensive cities

In two-thirds of major regional housing markets — 98 out of 148 — prices continue to drop, especially in more expensive locations.

We may see expensive markets fall further, which if that happens sooner than later, would make it an excellent time to buy into an expensive market. This wouldn’t have registered as a possibility even a few months back.

It’s difficult to predict if this will happen. And if so, whether falling prices become offset by the federal interest rate hikes practically certain to arrive in the coming months.

The only way to know for sure is to wait until the latest rate hike sets in.

Meanwhile, keep in mind that — as with any investment — it’s best time to buy is usually when prices are low.

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Homeowners aren't in dire straits

The onset of the pandemic could have been catastrophic for the housing market if millions of homeowners had no choice but to default on their loans.

Fortunately, mortgage forbearance programs allowed struggling borrowers to pause their payments until they could get back on their feet. And it worked: by the end of June, the share of mortgage balances 90-plus days past due remained at 0.5% — a historic low.

And compared to 2010, when delinquencies on single-family homes hit a 30-year high of 11.36%, the rate was just 2.13% in the first quarter of 2022.

As of June, 2.7% of outstanding debt was in some stage of delinquency, amounting to $435 billion in arrears. That may sound like a lot, but it’s a decline of two percentage points from pre-pandemic numbers.

On top of that, rising home prices has translated into increased equity for homeowners. Although home prices have started to decline, by the end of September, mortgage holders held nearly $11.5 trillion in tappable equity — with home values in the country’s largest 50 markets still up 19% to 66% compared to the start of the pandemic, according to Black Knight, a mortgage technology and data provider.

And even as the numbers reflect the real estate market may be slowing, Black Knight has said that the “market is on strong footing to weather a correction” given that the total market leverage (including both first and second liens) was just 42% of mortgaged homes’ values — the lowest number on record.

2008 had oversupply, but here we have low supply

For those who fear a repeat of the 2008 financial crisis that rocked American banks, take heart. Even the economic perils of the pandemic left many homeowners relatively unscathed.

With some owners teetering on loan default, mortgage lenders introduced programs to put payments on pause. Historic lows in mortgage balances ensued, with loans 90 days past due pegged at just 0.5%. That’s a far cry from the 11.36% rate in 2010, when Americans were struggling to make payments.

Should home prices increase in much of the U.S., homeowners will enjoy more equity, which will put them in a better financial situation, as noted in the Harvard Business Review.

Compare that to 2008, when the housing crash and oversupply killed home prices — and led at least one Detroit homeowner to sell for just $1.

“High mortgage rates approaching 7% have significantly weakened demand,” said NAHB Chairman Jerry Konter. “This situation is unhealthy and unsustainable.”

And it’s why 2022 might be the lowest prices you see for some time.

So does that mean moving would be the best move? Between housing prices and mortgage rates, let’s see how the economy moves first.

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