Though there has been a lot of chatter the last couple of years about a housing market crash, industry experts now agree that isn’t likely to happen. While prices may fall a bit over time, they aren’t going to bottom out. There are a few different reasons why.
In order for there to be a housing market crash, there has to be more supply than demand, which is what happened last time the market crashed. Too many properties were on the market and prices of homes tumbled, causing the crash. Right now, there is a low inventory of properties on the market for sale.
One reason for the shortage is homeowners are staying put. Mortgage rates are still relatively high, so fewer homeowners are shopping for a new house which means fewer homes for sale. They are choosing to keep the lower interest rates they currently have rather than take on a new mortgage at a higher rate.
Also, there’s been a shortage of new builds over the last few years because builders have not been able to keep up with demand. This problem was exacerbated by the pandemic when work was shut down and prices for supplies skyrocketed. Builders were on the sidelines for an extended period of time and haven’t yet been able to catch up to demand.
There are also fewer foreclosures than there were leading up to the last market crash. When foreclosure rates are high, the market is flooded with properties. That surplus of supply causes prices to go down. That isn’t happening now largely because home equity values are so high. The higher home prices in the current market give homeowners equity that can help them get out of financial trouble instead of defaulting on a mortgage.
Another reason a crash isn’t likely anytime soon is lending standards are so strict that fewer borrowers are in a position to default and foreclose. Prior to the last crash, lenders’ standards were more lax, to the point where some borrowers didn’t have to provide proof of income. That’s not the case anymore. Lenders higher standards for qualifying for a mortgage and require borrowers to unequivocally prove they can afford the home they are buying.
To top it off, all of this is happening at a time when demand is high. That imbalance is protecting the housing market from another crash in the near future.
