Until recently, the Federal Reserve has been reluctant to admit that a housing correction was coming. However, in a speech last week, Fed Governor Christopher Waller acknowledged that there may be a “material correction.” However, he allayed fears of a market crash. He said that, due to relatively tight underwriting, mortgage borrowers have generally higher credit scores than they did before the 2008 downturn.
Here are key takeaways from Waller’s speech:
- The decline in pending home sales in August suggests that sales will continue to fall
- Builders have already begun cutting their list prices, offering large incentives, and pulling back on starting new single-family homes.
- While this market correction could be fairly mild, there may be a much larger drop in demand and house prices before the market normalizes.
This announcement shouldn’t come as a surprise because it’s exactly what agents have been seeing for months. Prices in some areas of the country rose very quickly, and now we’re seeing normalization across the country. Yes, there will be some market discomfort in the short term, but in the long run, this is exactly what the market needs.