The housing market in New Jersey—and across the nation—is teetering on the verge of an inevitable crash. The warning signs are there—prices are too high, and significantly more properties are going into foreclosure.
It’s only a matter of time before the market corrects itself, but what does that mean in the interim? Unfortunately, things are about to get worse before they begin to improve.
Below, Dennis Lynch of Dennis and Marshall Lynch Rumson NJ Real Estate Analysts examine what to know and how current or prospective homeowners can prepare.
A Look at the Warning Signs of a Housing Market Crash
There are several warning signs that the housing market is on the brink of a crash. One of the most obvious indicators is the decreasing affordability of homes. The median home price has risen faster than average wages for several years now, making it increasingly difficult for people to buy residential properties.
In 2020, home prices in New Jersey rose by 12 percent. The cost increased another 15 percent during the following year. Prices are expected to rise 5 percent in 2022, if not more, before the housing market eventually crashes.
Another strong indicator that the housing market is headed for a crash is the increasing number of properties entering foreclosure. New Jersey already ranks among the states with the highest rates of foreclosure. During the first six months of 2022, the foreclosure rate went up 245 percent.
This essentially means that one out of every 410 homes in New Jersey is being foreclosed upon. Dennis Lynch expects this trend to likely persist as more homeowners default on their mortgages or are forced to sell their homes at a loss.
Can the Market Correct Itself?
Eventually, the market must correct itself as interest rates begin to rise and credit becomes more difficult to obtain. Artificially inflated prices propelled by low interest rates and easy credit will start to fall as people are no longer able to afford homes.
While this correction is long overdue, Dennis Lynch of Rumson NJ presents an immediate concern for current or prospective homeowners and renters. A market crash will force many people to sell their properties at a loss and make it difficult for them to find other affordable housing before prices begin to level out and become more realistic.
Rest assured that it will happen, but there’s no telling how long the correction period will last. People need to be prepared and get ready to survive the downturn.
What This Means For Current & Prospective Homeowners and Renters
Own a Home? Think About Selling Now
For homeowners, a market crash could mean big financial losses. Demand for housing plummets as prices become unattainable, so homeowners may have to cut their prices dramatically before potential buyers will even consider their properties.
When homes are sold during a market crash for much less than the sellers paid during a bull market, sellers lose a significant amount of equity since the home values are so much lower. If you’re thinking about selling your home, it’s best to do it sooner rather than later.
The longer you wait, the more likely it is that your home will lose value. And if the market crashes, you could even end up owing more money to the bank than your home is worth. Selling now means cutting your losses while you still have the option because the market is likely to get worse before it gets better.
Thinking About Buying? Why Wait
If you’re thinking about purchasing property, you should wait until after the market crashes and home prices plummet. In addition to a significantly lower cost per square foot, you’ll benefit from less competition among buyers and a greater variety of properties to choose from.
Market crashes are generally good for buyers; they can score properties at remarkably low prices before home values rise as the market naturally recovers. Just make sure that you have enough cash available to make a purchase. Getting a mortgage during a market crash can be difficult.
Renting? Buckle Up, But Don’t Panic
Rent prices have increased by more than 27 percent across the U.S. in 2022 as mortgage rates and home prices soared. People who would’ve otherwise purchased property were forced into the rental market. Higher demand has allowed landlords to ratchet up rental rates. When high rents are coupled with painfully stagnant wages in many industries, it’s hard for people to stay in their homes or even find affordable accommodations.
Renters should buckle up in the short term as the housing market sinks toward its inevitable crash. Dennis Lynch believes rental prices will decrease once again as home prices and mortgage rates tank, making it possible for more people to purchase real estate instead of renting. This downward pressure on the rental market will make it affordable again in the long run.
Watch the Market and Have a Backup Plan
It’s important to stay up-to-date on what’s happening in the housing market. Keep tabs on things like interest rates, home prices, and inventory levels. This will help you gauge whether or not a market crash is imminent.
No one likes to think about the possibility of their home losing value, but it’s important to have a backup plan if a market crash does occur. Many people choose to invest in a second property, which can provide income if they need to sell a primary residence.
It’s also a good idea to have some cash saved up in case you need to make a down payment on a new home quickly. No matter what you choose to do, it’s important to have an exit strategy in mind in case things don’t go as planned.
Follow Dennis & Marshall Lynch Real Estate For the Latest News in Rumson
Dennis & Marshall Lynch Rumson NJ Real Estate Analysts regularly publish the latest news and important information about the real estate market in Rumson, NJ, and surrounding areas. Follow them for more news articles and helpful tips, or contact the agency to learn more.