Buyer Confidence Is Plummeting – What Ripple Will This Cause On US Housing?

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Buyers, under the influence of a hot real estate market that has threatened to create a bubble (and perhaps succeeded), are finally losing confidence in the current market. Analysis conducted by Reuters found that just 35% of consumers felt that now was a good time to buy a property, a 12% drop from earlier in the year. A combination of effects, including high prices and low, poor quality stock, has created this malaise; what’s less certain is if there’s a clear way out, and what impact this will have on the real estate-finance relationship.

Mortgage demand sliding

Despite rising house prices and reduced stock, record high levels of equity and a desire from first-time buyers have continued to push mortgage demand up. The proliferation of low-fee lenders and frictionless online services that provide a less convoluted lending process has also influenced a hot market, creating home sales even when factors point elsewhere, and providing ample competition for traditional lenders. However, with inflation rising and the specter of higher interest rates now on the horizon, CNBC has reported that the average 30-year fixed rate mortgage rose 0.3% to 3.18% in May; applications actually rose 4% on this, but were 2% lower than a year before.

Impact on finance markets

Housing is, of course, a notorious market, due to its history in the 2008 economic crash. The pressures put on the housing market from across all areas of business and the consumer base can create unbearable tensions that result in crashes. The current system is far more tightly regulated than it was in the years leading up to the 2008 crash, but it remains volatile in places. Real estate is a market that, according to Grant Alexander Wilson writing for The Conversation, protects against the worst excesses of rampant inflation. As government funds are funneled into new infrastructure building and COVID recovery, there’s a risk that reduced rates of property sales and a lack of movement into new rented properties could create issues for investors looking to protect their financial investments.

Rectifying the problem

The solution is simple in theory. As Vox notes, the problem of skyrocketing house prices, lower new acquisitions, and low buyer confidence can all be met through new house building. House building has slowed to unacceptable levels over the past decade, and this is a big reason behind why the bubble has occurred as it has now. Putting new finance into house building, and generating investment into the tertiary industries that feed it (such as materials, lumber, concrete, and so on) will help to achieve a structured approach to ensuring that the bubble can be safely ‘deflated’, and that the normal resumption of the real estate market is achieved.

It’s a simple resolution, but a fine one. Building more properties will alleviate the pressure on the entire market. This, in turn, can make real estate a safer investment, and help to tune down inflation that is currently worrying a few of the nation’s investment institutions.

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