What Impact Will a Market Correction Make?

A market correction comes about when interest rates intersect with buyers ability to purchase driving down their purchase power.

As a result of that phenomenon, home values make a correction. The projected correction is 10% which means a property currently on the market for $500,000 would sell for $450,000.

We are seeing corrections in the 2%- 5% range at this very time. This is helpful for buyers working within a certain budget and still is giving sellers substantial gain on their sale.

As for pricing falling 50% not likely and here’s why. When the market fell in 2007 and 2008, 90% of the market was bank owned or REO’s. In order for that to happen again we have to see 100’s of properties in default followed by months later 100’s of properties in foreclosure.

At this time we have had 56 notices of default out of 110,000 homes. Last month we had 3 foreclosures and the month before we had 6 and before that 0.

Our inventory is continuing to rise giving more options however selling quickly when priced properly.

Corrections in the housing market are characterized by a sustained drop in home prices over several months, as opposed to seasonal price drops. The home price index falls 10% or less from its peak within a year.

Market correction history reveals that it tends to end a real estate boom and herald a market adjustment when house prices decline in many regions. Home price growth may flatten year-over-year, it takes longer to sell a home, and listings inventory rises.

Even so, a correction in the market is not the same as a real estate crash.

What Is the Difference Between Market Correction and Market Crash?

In a correction market, buying and selling prices return to more normalized levels. The price drop is not dramatic and sudden, as in a crash. It is gradual, often playing out over six months.

In addition, a market correction is marked by a significant drop in home sales, causing homes to remain on the market longer. Prices become more stable as supply and demand balance out. Bidding wars reduce, so homes sell at or below their original listing price.

Yet, a big indicator of the next market correction is often when home prices fall by up to 10% from their peak within one year. In contrast, a real estate market crash occurs when prices drop over 20% from their peak in the same year.