You may have heard talk of a housing market correction lately. As a homeowner or person planning to buy a home, you might wonder what it means for you. How will it affect your home or your ability to buy?
The real estate market can be complicated. Shifts in the market can also affect different owners, buyers, and sellers differently. This post will explain market corrections.
In the most basic sense, a market correction is when home prices experience a slight drop. It usually occurs when the cost of buying slows demand. You will see fewer buyers in the market and an increase in inventory. As a result, prices start to decrease.
However, it is a small decrease in prices. While there is no set standard, most would say a correction does not go beyond a 10% decrease in price. The idea is that the market is adjusting for prices that had risen beyond the value of the homes.
At this point, you might wonder about the difference between a correction and a crash. You may even have thoughts of the housing bubble from the mid-2000s.
The first difference is that a crash is much more pronounced and undeniable. A correction is gradual and only a slight decrease in prices. A crash happens quickly, and prices plummet. If you look at the subprime mortgage crisis, home prices dropped by nearly a third.
A correction has prices moving to where they should be. Costs get a little high, and the market adjusts. With a crash, prices go from far beyond actual value to crashing well below it.
Unfortunately, there is no easy answer to this question. It is usually easy to see a crash when you are in one. With corrections, there is often debate about whether one is occurring or not. Since the decrease is slight and gradual, it isn’t easy to provide a 100% answer to that question.
Many economists believe we are in a housing market correction. There are conditions that indicate as much. The truth is that it is hard to know until after the fact. You have to look back at what happened to prices over the period in question. It is also important to note that corrections can be regional or national.
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