Understanding a real estate market correction in West Knoxville is important, especially for first-time homebuyers. Market correction is the decline of a value greater than 10% but less than 20% of the price of an individual asset. Corrections in an asset or market can happen briefly or over an extended period, but usually temporarily.
Housing in Knoxville became less affordable because of higher interest rates and home prices increasing to 7.3% since December 2022. This trend brought less demand for housing, forcing sellers to lower their prices and causing market correction.
This article will give you a deeper understanding of market correction in West Knoxville, what causes it, and what homebuyers can expect from this shift.
As we entered the year 2023, FOX Business reported that the US is currently experiencing its second largest home price correction since the end of World War II.
The big question is, how? Before anything else, we need to understand why market correction happens in real estate.
One of the biggest factors to consider is housing affordability. According to the CATO Institute 2022 Housing Affordability National Survey, 55% of US Citizens don’t think they could buy the homes they own today based on the current house prices.
This concern over housing can result in fewer people moving up to a new home and fewer first-time homebuyers being able to invest in real estate. Fewer homebuyers mean less demand, so properties stay on the market longer, leading to an oversupply of housing.
And due to the increase in supply, homeowners tend to lower their prices, so they can still sell their property and make it affordable for potential homebuyers.
A change in government policies, like the recent change of monetary policy by the Federal Reserve (Fed) to fight inflation, also contributes to a market correction.
With the Fed’s objective to slow down economic growth and halt the rising inflation rate, this change brought on a rise in interest rates. Since then, mortgage rates have increased, reaching a high of 7% in November 2022, one of the highest interest rate increases since the 2000’s.
High interest rates will increase the cost of loans to purchase properties, therefore making it hard for homebuyers to obtain mortgages. Then, there will be less demand for real estate, causing prices to fall and leading to a market correction.
Which is what’s happening today. The inflation rate is slowing down as a result of the Fed’s efforts to increase interest rates. Now, mortgage rates are decreasing, and analysts predict that it will continue to decrease this year.
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