As inflation soars to record highs and the Federal Reserve maintains its aggressive stance on raising interest rates, financial experts are looking to the housing market for signs of the next 2008-style real estate bubble.
Nearly 15% of all home contracts fell through in June, according to real estate brokerage Redfin. Current real estate prices simply put homeownership out of reach for many North Texans.
Cliff Freeman, a real estate expert at the Prosper-based Cliff Freeman Group, stated that North Texas is a “hot place” for real estate deals and a hot place for them to fall through.
“What’s happened in the last seven months is that we have seen people who were buying houses at $300,000 now only able to afford homes that are 20% less. Some down to $240,000,” Freeman stated.
In an interview with NBC 5, Freeman was asked about whether the housing market in North Texas is heading toward a 2008-type crash.
“I don’t think that we are,” Freeman responded. “There is an inflection in the market. There is definitely a shift, but this shift is not going to be catastrophic like when we had seven million foreclosures in the Great Recession.”
Freeman advised people who do not think they can afford to buy a house that they “really can’t afford to rent.”
“Get with a lending professional. They will tell you how much you can afford with the current [mortgage] rates,” he stated.
Freeman recommended that when buyers find something in their price range, they should “put something on it now. Lock the rate now because [the rates] are likely to continue to rise.”
When NBC 5 asked Freeman whether rates are currently manageable “for people who want to get into the market,” he responded: “I’ve been doing this for 35 years. I need people to understand that rates are still relatively low.”
He explained that “we just got spoiled,” elaborating, “I have seen them go up around 13% and 14% in my time. … If you can afford to get in the market now, do it. Renting is just paying the landlord, and you get nothing in the end.”
Freeman stated, “I like to remind people that you are marrying the house but potentially dating the rate. Yes, you’re going to want the house for as long as you need it, but the rate you start with today may not be the one that you have in three years.”
While real estate experts like Freeman argue we are not in a similar housing bubble as in 2008, a 2021 study by the Federal Reserve Bank of Dallas titled “Real-Time Market Monitoring Finds Signs of Brewing U.S. Housing Bubble” suggested U.S. housing prices are increasingly becoming detached from market fundamentals.
The report warned of “abnormal U.S. housing market behavior for the first time since the boom of the early 2000s,” citing indicators like the price-to-rent ratio and the price-to-income ratio as clear reasons for concern.
Since the Fed’s study, U.S. housing conditions have worsened, with mortgage rates nearly doubling since January, according to the Mortgage Bankers Association.
Mike Fratantoni, a chief economist at the Mortgage Bankers Association, stated the Fed is having a profoundly disruptive effect on real estate markets, and housing demand is dropping sharply. The latter could be an alarming sign given the current value of median-priced homes.
U.S. existing-home sale prices hit a record $407,600 in May, with mortgage rates hitting 5.78%, the highest since 2008, according to the National Association of Realtors. Fed researchers claimed higher home prices might have been fueled by a “fear-of-missing-out” wave that drove many homebuyers into an already “hot” housing market.
Market conditions today are not the same as during the housing collapse in 2008. Still, global supply shocks, lingering concerns over the COVID-19 pandemic, rising inflation, growing unemployment, and the cascading effects of the Russia-Ukraine War are creating unwanted pressures and uncertainty in many markets, including the U.S. housing market.