Sharply rising mortgage rates, a steep decline in home sales and a record price slowdown have raised concerns that the housing market could crash.

The mortgage rate reached over 7 percent this week, the first time in almost two decades that rates climbed that high. U.S. home prices saw a record slowdown in August, falling by 2.6 percent, and new home sales fell 11 percent in September, according to data released by the Census Bureau on Wednesday.

But experts argue these market trends are a symptom of a correction after two years of massive growth and several key elements present during the 2008 housing crash are missing in today’s current economic climate.

The start of the pandemic saw efforts by the Federal Reserve and Congress to stimulate the economy. The central bank dropped interest rates to near-zero levels and lawmakers passed rounds of COVID-19 relief for individual Americans to get by and small businesses to keep employees on the payroll.

Amid economic strife, the housing market boomed because of extremely low mortgage rates, intense competition bolstered by low inventory and remote work options, and soaring home prices.

But since March, the Federal Reserve has instituted a series of interest rate hikes in order to rein in sky-high inflation that has persistently hovered around 8 percent for months.

As a result of the central bank’s efforts, mortgage rates have skyrocketed, topping 7 percent for the first time since 2002 this week. Mortgage rates could climb further as the Federal Reserve continues to fight inflation and raise interest rates.

This has made it more difficult for buyers to afford monthly payments while listing prices remain high. The median sales price of new houses sold last month was $470,600, while the average sales price was $517,700.

The increasing mortgage rates have resulted in an overall drop in demand — fueled by plummeting new home sales — and record price deceleration.

Further, the number of homes under contract fell for the fourth straight month, a further sign of a significant contraction.

“Until this month, the pullback in the housing market could be described as something of a return to pre-pandemic conditions before sub-3% mortgage rates ignited a homebuying frenzy in 2020 and 2021,” Redfin Deputy Chief Economist Taylor Marr wrote in an analysis on Thursday.

“But now both mortgage purchase applications and pending sales are below 2018 levels. A four-year setback is a serious correction. With mortgage rates still elevated, we are in for further sales declines, but those should eventually bring price relief to those who need to move this winter,” Marr added.

Yet even amid the slowdown, experts say the housing market and the larger economy are markedly different from the 2008 financial crisis, when the housing bubble burst.

“At that time there was a glut of housing inventory. Overbuilding had taken place – too much home construction relative to household formations,” Robert Dietz, chief economist for the National Association of Homebuilders, told The Hill.

“You had a lot of risky mortgage underwriting that put us in a position that when home price declines occurred and then ultimately combined with a rising unemployment rate [there were] lots of underwater mortgages and rising foreclosure rates, and it took some time for the housing glut to be reduced,” Dietz said.

The housing glut was followed by close to a decade of underbuilding that contributed to a shortage of at least 1 million homes today. This was exacerbated by millennials coming of age near the end of this period of underproduction.

Millennials’ ongoing needs could also put a floor on prices, Yelena Maleyev, an economist with KPMG Economics, told The Hill.

“Millennials are going to continue aging into their prime home buying years. We’ve had household formation outpacing new building for many years now,” Maleyev said.

“And so, this undersupply is still going to provide a bit of a floor on how low you can possibly go because even at a 7% mortgage rate, people still might need to move. There are life triggers that cause people to need to buy a house even if they don’t necessarily want to,” Maleyev added.

There are also major differences in lending standards today compared to the lead-up to the financial crisis. Previous practices enabled buyers to easily qualify for loans even if they did not have a supporting income, Jason Sharon, mortgage broker and owner of Home Loans Inc., explained to The Hill.

But now standards have changed, especially after the passing of the consumer protection legislation known as the Dodd Frank Act, named after former lawmakers and bill sponsors Sen. Christopher J. Dodd (D-Conn.), and Rep. Barney Frank (D-Mass.).

“So, credit restrictions increased, and the verification of income and assets and employment were established. Now you’re not getting a conforming loan without meeting very rigorous documentation requirements,” Sharon said.

Other economic factors like unemployment differ sharply from the early 2000s financial crisis. Labor Department data shows the unemployment rate at 5 percent in December 2008, before ballooning to 9.5 percent by the middle of 2009.

Conditions appear better today as the unemployment rate fell to 3.5 percent last month.

In addition, the U.S. also experienced growth in the third quarter of this year. Data released by the Commerce Department showed the gross domestic product (GDP) increasing at an annualized rate of 2.6 percent. Though, these figures have still not quelled concerns about a looming recession.

Nonetheless, the latest GDP report and employment rate means the U.S. has so far avoided a recession.

Still, there was difficult news for the housing sector within the data, as spending on residential construction dropped 26.4 percent in the third quarter. This is almost 10 percentage points higher than the 17.8 percent decline in the second quarter.

Economists expect further declines in the housing market, but Dietz said the numbers should be put into context.

“I think we have to kind of put some of the expected readjustment, painful as it will be, into some perspective that if you’re talking about a market that saw prices over the last two years rise 40 or 50 percent, a pullback of 15 percent still leaves the market considerably higher priced than where it was two years ago,” Dietz said.

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