George Gammon: The Real Estate Crash Has Started (How Bad Will It Get)

For most Americans, the largest source of wealth they have is the equity in their home. But real estate isn’t a sure-thing investment that always goes up. As prices fluctuate, so too can a sense of one’s wealth, and how much one spends on items such as cars and vacations.

That could pose some challenges in the coming year. That’s because the trend of declining real estate has just gotten started, and will likely play out well past 2023.

The housing market has now had five months of declining prices from their peak. It’s the first notable decline in housing prices overall since the housing bubble popped. That decline likely has more to go for several reasons.

The first is demand. Mortgage rates soared in 2022, more than doubling. Yes, a 7 percent cost on a 30-year fixed mortgage is low historically over the past 50 years.

However, it’s the highest level in 15 years. That’s keeping potential homeowners away from the market for longer, especially at current home prices.

The second is supply. While there was an oversupply during the housing bubble, the past decade saw a decline in new homes come onto market. While that’s good news, the pandemic saw a jump in home construction that has managed to meet demand.

Of course, some local markets seeing a big change in population may buck the trend. But it’s clear from the big picture data that the decline in housing prices has far more to play out.

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