A main question people living in the U.S. are now asking is “What is going to happen to the housing market?” Pointedly, they question, “Will it crash?” Absent of a crystal ball to see clearly into the future, we must rely on experts to predict possible outcomes.
Are we headed for a housing market crash? Let’s explore…
A collapse in the housing market is a sudden drop in homebuying demand. This can lead to something called a housing market crash. This happens when home prices and mortgage rates remain high, and people simply can’t afford to buy homes. Per Andrew Shirley’s article entitled, Is America on The Precipice of A Housing Crash? “…. some expert analyses suggests that “…the bubble may be about to burst, and the country may already be in the early stages of a dramatic housing crash.” That’s a real nail biter…
You’ll hear some experts say, “Oh, that will never happen.” They point out that loose lending standards affected the housing bubble crash that began around 2006. But let us not forget that it is extremely and entirely possible to revisit the scenario, but for slightly different reasons. When people don’t buy houses, and homes sit and sit on the market without buyers, home values typically go down. In many parts of the country, home prices now exceed what people living in those areas can afford. Add high interest rates into the mix. What does it do? It furthers unaffordability. Normally, high interest rates lead to reduced home values. Currently, due to a supply shortage of homes on the market in many places, prices are staying up or even rising. But might that change?
The housing market began to slow in late 2022 but home values stayed up due to demand for homes. Now, because of a lack of inventory, the demand still exists. If this low-inventory high-demand for homes scenario remains intact, prices may not decline. However, should economic matters worsen under the Biden/Harris administration, matters may grow worse. Buyers will suffer as skyrocketing prices outpace income, halting people’s ability to purchase homes. When home values decline, borrowers lose equity in their homes. Home equity is the difference between a home’s current value and the mortgage balance. Negative equity is a consequence, meaning that a home’s value sinks below the amount you owe on it. People with negative equity may struggle to refinance mortgage loans as lenders won’t lend more than what a property is worth. This poses a problem for sellers, particularly senior citizens who are depending upon the equity in their homes to finance some of their retirement.
In some parts of the U.S., such as areas in the South, new home sales are dropping. Contributing to the problem are the large numbers of new homes that some builders cannot sell because buyers can’t afford them. In other states, spikes in homes on the market and price drops are becoming apparent. Does this indicate that the housing market is in crisis? Perhaps. But not so fast. Per Fingerlakes1.com, real estate mogul Ryan Serhant believes that the housing market will experience a potential surge in activity. In fact, he is forecasting a significant boom in the housing market for the fourth quarter of this year. How is this so? He anticipates it will be “…driven by lower mortgage rates and renewed buyer confidence.” It is expected that the recent dip in mortgage rates, in part due to a rather unfavorable employment report, has stirred some consumer confidence.
Truth be told, without a crystal ball, it is challenging to predict exactly what will happen. Will we experience a housing market crash? We aren’t certain but here are some scenarios. Should mortgage rates drop enough to ease affordability challenges, inventory and demand are expected to rise. Should rates remain the same, we may temporarily hit a plateau. Should rates rise again, it will become harder for people to get loans or people will face higher monthly payments. Quite possibly, this could lead to a decrease in home buying demand which could ultimately result in a fall in home prices. Any of these scenarios are further complicated should a downturn in the economy be present. In other words, the big problem we skirted could possibly become a reality.
This article is purely informational and is not intended as financial guidance.
