Utah’s home prices have never been higher, and the buying frenzy has led many people to wonder if a housing market crash is in the near future. The rapid rate of price increases is certainly unsustainable. Here’s a look at what’s causing the high housing prices and how to prepare for a market crash.
Interest Rates and Inventory
Interest rates play a significant role in the housing market and play some responsibility in the rapid home price increases over the last 18 months. Low-interest rates encourage more buyers to start shopping because they can get expensive houses for less money when rates are low. The Federal Reserve plans to keep the prime rate (the rate that banks lend money to one another) low, which in turn encourages low consumer interest rates.
Another factor in the housing price spike is inventory. The COVID-19 pandemic caused many homeowners to change their plans and stick with their current living situation rather than sell. Far fewer homes hit the market in the spring and summer of 2020 that is typical, and the low inventory has continued through 2021. Low inventory (few sellers) combined with low-interest rates (many buyers) led to crazy competition over homes, and high competition lead to high prices. It’s the law of supply and demand.
How to Prepare for a Housing Market Crash
Currently, housing prices are stable, and there’s nothing to indicate that a housing market crash is right around the corner. But that doesn’t mean it’s not in the future. History tells us that prices rising so drastically will come back down at some point; it’s just impossible to predict when that might happen. It’s important to be prepared so that you don’t find yourself filing bankruptcy or losing huge amounts of money when the crash does happen. Here are 4 expert tips on how to prepare.
- Don’t overspend on your home. As a general rule-of-thumb, your mortgage payment shouldn’t exceed 28% of your monthly income.
- Make your downpayment as large as possible. Many mortgages offer 0% down financing, but financing 100% of your home is risky. The larger your downpayment, the more equity you have in your home.
- Refinance for a lower interest rate. Keep an eye on interest rates and when rates drop, refinance to get the lowest rate possible. This can significantly reduce your monthly mortgage payment and help you get through a crash.
- Save your money. Now is the time to build that emergency savings account. Aim for having 6-months of living expenses in a fund for emergency situations.
HoneyHomb Can Help
If you’re worried about a housing market crash, HoneyHomb is here to help. Whether you need to sell your home and downsize or you’re looking to buy a new home, our flat-fee listing service has exactly what you’re looking for. Low costs, professional guidance, and support every step of the way. We are helping individuals and families buy and sell homes in Sandy, Utah, and the other cities along the Greater Wasatch Front. See how HoneyHomb can help you reach your goals. Get started today!