Here’s the truth behind all the fears of an imminent market crash.
According to Google, searches including the phrase “When is the housing market going to crash?” increased by 2,450% in April. Today’s real estate market might feel eerily like the market conditions that preceded the Great Recession, especially with home prices going up so quickly.
However, Robert Dietz, chief economist at the National Association of Homebuilders, says, “We’re not going to see a crash in the housing market, but we are expecting some cooling on the really unsustainable growth rates that we saw, particularly in 2020. When home prices are growing faster than incomes, ultimately, that is an unsustainable trend.” And according to the chief economist with the National Association of Realtors, Lawrence Yun, “We’re not in a bubble; it’s simply a shortage of housing.”
So what is different about today’s market compared to the years leading up to the worst crash that the market has seen in modern times? First of all, today’s mortgage standards are nothing like they were leading up to the crash. At that time, subprime loans were being issued, which caused a lot of problems with the stock market. Now, however, we have very strict mortgage rules; it’s much more difficult to get a loan these days.
Secondly, prices aren’t soaring out of control today like they were back then. CoreLogic predicts a year-over-year increase of 3.5% versus the 11.3% increase over the prior 12 months.
Of course, there is a shortage of homes in today’s market. Back in 2005, we had a surplus of inventory, and by 2007, there were 5,754 homes available in our MLS. Today we have just 644 homes available. The new construction market isn’t keeping up, either. There were 13 straight years when we built below the 50-year average for home construction.
Finally, people in today’s market are equity rich. Even if someone was unable to continue with their mortgage payments, they’d still have enough equity in their home to avoid a short sale or foreclosure. They could just sell the home instead.
To put things in perspective: If you looked at all of the housing prices from the Great Recession, the average increase per year was 4%. Obviously, we’re closer to 20% in just the last year; in fact, Austin, Texas, saw 40% over the last year. If the 4% increase lasted up until now, the average home price would be $317,000 nationally, where it’s actually only $297,000. These numbers can be see in the graph provided by Keller Williams Realty, Inc.
In the end, I don’t think that we’re in a housing bubble. I think that a market correction is taking place, and I expect home prices to slow down as we move into next year.
If you have any questions about what’s happening in your neighborhood or the housing market in general, don’t hesitate to reach out to me. I’m always delighted to answer your questions.