Source: CNN —
A much-feared correction in US home prices is underway. While this may feel like déjà vu, the drivers behind the recent spike in prices and the current housing market downturn are different from the ones seen in the 2000s. This time around, the US financial system is better prepared, and a national crisis is less likely.
It’s true that US homeowners should prepare for an ugly 2023. After years of underinvestment and suppressed supply, US home prices rose an eye-popping 45% between January 2020 and June 2022, as low interest rates and the surge in remote work spurred demand. For comparison, in the lead-up to the housing downturn that started 16 years ago, prices were up by 30% over a comparable period.
But the housing bubble in the 2000s was underpinned by predatory lending, poor underwriting, adjustable-rate mortgages and rampant speculation. Americans were convinced that housing was a great short-term investment and that prices would only continue to rise. This famously turned out not to be the case.
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