Don’t buy a house in 2023. Is there a Housing Market Bubble?
Hello! Today we will have a look at the housing market in the United Sates and try to understand what’s going on with it. There are 2 opposite opinions regarding the market of residential property – one group of people says “Don’t buy a house in 2023 because there is a housing market bubble that is going to burst in 2023”. Other experts say that we should not expect any significant change in the residential property prices. Why don’t we listen to both sides? Especially those, who say there is a bubble – let’s allow them to explain their opinion to us.
This article is not a financial advice. It is more like thinking out loud, and is written in a free manner, as you are about to see. Mistakes and typos are meant to be exactly where they are 🙂 Enjoy!
“Don’t buy a house in 2023”. Why?
Some people say there is a housing market bubble that is going to explode in the next 6 to 9 months. If this happens, the residential property prices in the US will go down significantly. Therefore, these people say it’s a very bad time to enter a housing market as an investor. And if you are going to buy some property for yourself, these people say “don’t buy a house in 2023, because the prices are going to drop”. Let’s have a look at their arguments and see if we should be cautious about the housing market.
First of all, how the housing market works?
It’s always about the demand and supply. If we put it very simple – if demand gets higher and supply gets lower, which means, there are less houses for sale, the prices rise. If demand gets lower and supply gets higher, which means there are many houses available, the prices go down. Prices follow the demand.
Arguments of people who say “Don’t buy a house in 2023, because the Housing Market Bubble will burst soon”:
People who say that there is a bubble in the housing market, explain it this way:
In the residential property market there are normal buyers, who want to buy a house to live in. And there are also investors, who buy property, which they can rent to tourists, or which they can flip – repair and sell for more money.
NORMAL BUYERS. How the residential housing market looks like for them?
- First of all, the prices are high, for many people it’s hard to buy a home
- Secondly, the mortgage rates have increased to above 7%, and, depending on your credit score, they can be near 8%. Homeowners with mortgage who bought a house before, have an interest rate below 6%. For many of them it doesn’t make sense to sell it and buy a new house, because they will have higher mortgage rates. So, they don’t seek to buy a new house.
- Thirdly, the unemployment rate is historically low, but if we have a recession, as expected in 2023-2024, it might go up. And there will be less people who are able to buy houses.
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All of this makes residential property less affordable for normal buyers like Millennials or Gen Z. This means that the demand among normal buyers who buy houses for themselves, might start decreasing. In this case the residential property prices can go down.
INVESTORS. How do they feel about the residential property?
Investors have a substantial share in the housing market, around 10%, which means 1 of 10 houses for sale is owned by the investors. Their behavior can impact the housing market significantly.
There are 2 main groups of residential property investors:
- Investors who buy homes to rent to tourists with platforms like Airbnb or VRBO
- Investors who buy property, which they can flip – repair and sell for more money
Investors who buy homes to rent to tourists with platforms like Airbnb or VRBO
The first group of investors (let’s call them Airbnb investors) buy property for tourists only, which means these houses are not available for normal people to live in anymore. So, the supply for normal buyers is low, and the prices in that area keep on a high level. However, if these investors start pulling back, if they stop buying residential property, the supply will increase, the prices will go down. So, the people, who say there is a housing market bubble, indicate that we need to pay attention to what investors do. If they stop buying property – it could mean the prices will fall soon.
Investors who buy property, which they can flip – repair and sell for more money
The second group of investors, home flippers, don’t reap the gains they used to get in the past. After deducting operational and maintenance cost and taxes they often sell at a loss. If they don’t sell fast enough, they lose the money.
In some areas like Phoenix, Las Vegas, Jacksonville, Sacramento, we see that around 20% to 30% of homes sold by investors were sold at a loss. If they decide to cover these costs, they might start selling more in other areas too. This could increase the supply and make the prices go down (according to people, who say there is a housing market bubble).
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So, I have just explained the arguments provided by people, who say there is a housing market bubble which is going to explode soon. They say that the residential property prices are going to drop significantly in the next 6 to 9 months.
However, there are also other opinions about this.
Arguments of experts, who say we should not expect significant residential property price changes
Is Dave Ramsey Still Right About The Housing Market Not Crashing in 2023?
For example, Dave Ramsey, the financial guru, doesn’t expect a significant drop in the housing market. He says it might slow down, but we should not expect any dramatic crash like in 2008, because there is a shortage of inventory supply almost in every city. The demand is higher than the supply. Of course, in some places the prices can decline, but if you look nationwide, the residential property prices are going to increase 2% to 7%. Here is what he said in one of Dave Ramsey shows: “We said, in a year 2023 you’re going to see a 2 to a 7% increase in prices nationwide, and that is about what we are going to see”.
Is Dave Ramsey Still Right About The Housing Market in 2023?
Is Dave Ramsey still right about the housing market not crashing?
Another opinion is from Redfin Chief Economist Daryl Fairweather:
“It’s too early to say that price declines have bottomed out. Prices may have room to fall because mortgage rates could still rise. The Federal Reserve just signaled that it is likely to continue raising interest rates this year. That could further hamper homebuyer demand and cause home prices to fall in the near term, though the drops would be minimal. We’re unlikely to see double-digit price declines like we did during the 2008 housing crisis.”
Daryl Fairweather
There are many people who say “Don’t buy a house in 2023” because the interest rates are too high. However, Daryl Fairweather gave us another good argument:
“Many people think it’s a bad time to buy a home because mortgage rates are high, but they should keep in mind that when rates do ultimately fall, many buyers waiting on the sidelines could jump back in. That could lead to more bidding wars since there aren’t enough homes for sale, and heightened competition could push up prices, offsetting some or all of the benefit of lower interest rates.”
Daryl Fairweather
BOTTOMLINE. Don’t Buy a House in 2023 … No, you should better buy a freaking house…
So, I presented two opinions to you. One claimed that there is a housing market bubble which is going to burst soon, and the residential property prices will go down. Another opinion from very respected and experienced people like Dave Ramsey says that it is not going to happen, we will not see a significant price drop in the housing market in the near future. In the end it’s always up to you to decide which arguments sound more reasonable to you and whether or not you are going to buy a residential property.
So good luck with making your own best informed decision about this. Have a great day!
