Timing the Next Market Correction


Timing the Next Market Correction


Knowing exactly when the market will correct itself is difficult and somewhat unpredictable, even for economists. We're still seeing interest rates lingering around the 4.5 mark with anticipation of a fed hike sometime this fall. Builder activity I think is more strategic than the last houisng boom. Builders are making better educated decisions about where to build and how many to build. Spec homes certainly trump major subdivision developments. We've seen home prices continue to rise this year, but at a modest more realistic housing rate. People are working, and they are spending money.


With that said, we will at some point see a correction in the market. It can't sustain itself forever. But, one thing we know is that we won't have a real estate market crash due to the mortgage industry's predatory lending with sub prime loans. Those days are long gone, and now consumers need excellent credit in order to purchase a home. That's the way it should be.  And, unless something unforeseen happens, the market should be less volatile when it needs to take a step back. The correction will not likely be a crash, it will more likely be a subtle correction that does not drastically affect people who made good decisions. 


It will be interesting to see if our current admin pulls the string on Dodd Frank legislation. That would make credit available to more people and generate more home loans. On the flip side, if they send Freddie and Fannie back to the private sector, that could result in the opposite happening. That may create fewer opportunities for those who were letting such products as FHA, USDA, and VA loans. Keep an eye out and ear open for those hot housing topics. Looks like the Trump admin will stay out of housing except for those two issues. But, they will have an affect on correction timing 


So, it is definitely still a sellers market, and there will be retail buyers who find themselves upside down in value here after the correction. There are still good buying opportunities for the saavy consumer, but do your homework. I've also noticed that a lot of contractors are making up for the bad years by escalating their estimates. If you plan on building your home because you got a good deal on land, your cost to build may cancel that out. 


The biggest advantage of buying in the current market is the interest rate. If you buy property that you can more than afford, you will be better off down the road. You may loose some value when the correction sets in, but you are paying a low-interest mortgage. You are giving less money to the banks. If you can extra principal on your mortgage then you will be even further ahead. The Fed will likely have the greatest impact on a housing set back. If they contiue to raise rates subtely, the market will accept things more gradually. Any sudden rate jumps could scare people right out of the market.