The current state of the housing market has left many wondering if a crash is imminent. After a long streak of price growth, home prices fell year-over-year in February 2023, and continued to decline until July. Since then, prices have been rising year-over-year but dropping on a monthly basis. With elevated mortgage rates and economic uncertainties, it's natural to question the stability of the housing market. However, experts believe that a housing crash is unlikely.
Housing Market Trends
According to Lisa Sturtevant, Chief Economist at Bright MLS, a plunge in home prices like the one experienced in 2008 would require a significant decrease in demand or a substantial increase in supply. Currently, there is little evidence to suggest that either of these factors is likely to occur. While the housing market faced challenges in 2023, including elevated mortgage rates and economic instability, experts believe that the overall demand for housing remains strong.
Caption: The American housing bubble that wreaked havoc on the global economy was a long time in the making. Largely the product of exploitative lending practices that put people in homes they could not afford, the housing market bust dragged the median American home value down 37% — from a pre-recession high of $230,000 in 2005.
The Housing Market's Resilience
Although the housing market experienced a slowdown, it has shown signs of recovery. Existing home sales rose in November 2023, offering hope for a rebound. Additionally, the Federal Reserve's signaling that it is done with rate hikes and predicting three rate cuts in 2024 could lead to lower mortgage rates, making homeownership more affordable. Despite the drop in home prices, a lack of inventory and a strong job market have helped maintain relatively high property values.
Limited Housing Inventory
One factor that could prevent a housing crash is the limited supply of homes. Currently, about 80% of mortgage holders have locked in sub-5% mortgage interest rates. This discourages homeowners from selling their properties and buying new ones at higher interest rates. As a result, housing inventory remains low, preventing a collapse in home prices even in the face of decreasing demand.
Unlikely Influx of Homes
Another factor that contributes to the stability of the housing market is the unlikely scenario of a significant increase in the number of homes listed for sale. Unless there are significant job losses that lead to mortgage payment defaults, homeowners are less likely to be forced to sell their properties. This further supports the notion that a housing crash is unlikely.
Builder Confidence and New Home Sales
While builder confidence in the market for newly built single-family homes has remained relatively low, new home sales have adjusted to higher interest rates. Despite the increase in construction costs, the median sales price of new single-family homes has adjusted lower. Additionally, housing starts have surged, reaching a six-month high in November.
A Less Dire Situation
Experts agree that even if there is a price correction in the housing market, it will not be as severe as the 2007-2009 housing crisis. Unlike the pre-2008 era, when subprime loans without income verification or adequate down payments were prevalent, today's housing market is built on stricter loan underwriting standards.
In conclusion, while the housing market faced challenges in 2023, experts believe that the current conditions do not indicate an impending crash. The combination of limited housing inventory, steady demand, and more cautious lending practices suggest that the housing market will remain resilient in the coming years.
Original Article by Swapna Venugopal Ramaswamy for USA TODAY. Follow her on Twitter @SwapnaVenugopal.
