A Mid-Pandemic Housing Bubble Is Bursting, and Home Prices Are Doing a 180

A mid-pandemic housing boom driven by remote flexibilities and ultra-low mortgage rates led to a 42% rise in U.S. home prices between March 2020 and June 2022, but as a homebuying bubble begins to burst, buyer activity is falling, and so too are home prices in some popular metro areas. Mortgage purchase applications are down 41% year-over-year, and between June and August, the Case-Shiller National Home Index showed a 1.3% drop in U.S. home prices, Fortune reports.

As mortgage rates continue to rise at a historic pace and buyer demand cools nationwide, some experts anticipate double-digit price declines in markets that saw unsustainable growth throughout the pandemic. If the Fed issues more aggressive rate hikes to tame inflation in the months ahead, sensitive housing markets could see substantial changes.

Of course, that's exactly what we've seen in 2022. The Fed's monetary tightening has seen the average 30-year fixed mortgage rate spike over the past year from 2.98% to 7.1%. That marks the biggest mortgage rate shock since Fed Chair Paul Volcker's infamous tightening in 1981.

That mortgage rate shock matters for two reasons. First, historically low mortgage rates—which also helped to power the Pandemic Housing Boom—are gone. Second, the spike means many would-be buyers have either been priced out or lost their mortgage altogether.

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