Will there be a correction in the housing market?

Is a price correction in real estate expected?

The short answer: Yes. A price correction in real estate in the US is expected. It should be noted, however, that that housing correction is also expected to fall short of a housing crash. After the Federal Reserve introduced its largest increase in interest rates in years to fight rising inflation, with further increases likely, home prices are expected to drop especially in housing markets that were overinflated. Those markets, particularly in the mountain west or in the southwest, which have seen dramatic speculation, will see the price pendulum swing significantly back the other way.

Boise, Idaho—which has recently been dubbed the most overvalued market in the US—in particular is due for a housing price correction. Other US cities and states that are likely to see a correction include northeast Florida, the Carolinas, and Phoenix and Tucson, Arizona.

The predicted correction is not expected to bring much relief for renters, however. Potential homebuyers will still have limited options to go from leases to loans due in part to rising interest rates and the supply of starter homes for buyers being limited. Rent growth is, however, being tempered thanks to construction for multi-family housing and rising permits.

A housing price correction—rather than a housing crash—is expected for a few reasons. The first is that housing vacancy rates remain at an historic low (as opposed to the historic highs prior to the financial crisis in 2008). Secondly, mortgage underwriting remains high, in terms of quality. The majority of loans are 15- or 30-year fixed-rate products. In other words, there are no signs of negative amortization or subprime activity that was so rampant prior to the foreclosure crisis. Finally, speculation and flipping across the US also remains low.