During the pandemic, housing prices skyrocketed.
Because of cheap borrowing rates and limited availability in certain areas, people are willing to pay more for homes, which leads to an overall increase of 11.3% in 2020 and 16.9% in 2021.
For many months to come, house-price increases will be less transitory than consumer price growth, as the US housing market will continue to suffer from a shortage of suitable housing for many months to come, Norada Real Estate warned.
It’s a buyer’s market right now.
However, rising property prices, mortgages that are relatively cheap to obtain, and consumers who appear unconcerned about prices raise the specter of the 2008 housing market crash.
Of course, market conditions aren’t identical, but the current situation has many people wondering if what goes up must come down.
Is a Housing Market Crash in the United States Unavoidable?
“The housing market is unlikely to crash due to two primary factors: Andy Kaufman, Chief Investment Officer of Community Capital Management, told TheStreet via email.
(1) Interest rates are at historically low levels (even if they rise a percentage point or two), making long-term mortgage financing affordable, and (2) due to robust wage inflation, first-time homebuyers or buyers looking to upgrade are likely to be ready to jump in if prices begin to fall.”
Many industry professionals who replied to TheStreet’s request for comment on whether the housing market in the United States will crash agreed.
However, not crashing does not imply an inexorable rise in prices, according to Tenpao Lee, retired professor of economics at Niagara University.
Lee pointed out that the current situation is vastly different from the Great Recession of 2008-2009, when the housing market plummeted by more than 40%.
“During the Great Recession of 2008-2009, demand for housing vanished due to increasing unemployment rates, while supply, inventory, and construction were at an all-time high, with roaring expectations initially followed by massive defaults,” he said.
“Lower prices were predicted by both demand and supply.
As a result, housing prices have plummeted to an all-time low.
He explained that this is unlikely to happen in 2022.
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Today, with higher interest rates and inflation forecasts, the demand for housing may fade a little, he wrote, “but the supply of housing has also been reduced due to higher labor and lumber prices caused by the pandemic’s supply chain concerns.”
To put it another way, the demand side predicted lower prices, and the supply side predicted the opposite.
Furthermore, the unemployment rate is continuously decreasing, which may help to stabilize demand.
As a result, while the total effect on housing prices may be a fall, it is unlikely to be a crash.
Why Isn’t This the Housing Market of 2008?
Julian Morris, a Certified Financial Planner, explained why the current situation is very different from the one in 2008, even though it looks like it is the same on the surface.
This market, unlike 2008, is driven by supply and demand.
Younger families are relocating to the suburbs from the metropolis.
The rate of acceleration may be reduced, but there will be no impending crash unless there is a surplus of extra housing, which there isn’t, “he penned.
People having adjustable-rate mortgages and overleveraging were the driving forces behind the financial crisis of 2008.
They defaulted, resulting in a glut.
This time, though, things are different. ”
Banks made it incredibly easy for almost anyone to secure a mortgage in 2008.
Overall, credit criteria were lax, and people with fair to good credit could obtain low-interest loans without the bank validating their income or assets.
That created a situation in which even a minor economic downturn would cause many people to default (which is exactly what happened).
In addition, Fannie Mae and Freddie Mac, which are government-backed loans, have limited how much money they can lend, which helps keep bad loans from clogging up the system.
Because there isn’t as much cheap money for unqualified buyers, the housing market is more secure and protected from a crash than it was in 2008.
The reality is that the market will continue strong for inventory-related reasons unless something changes in the economy that leads to greater defaults (or lenders relax their rules like they did in 2008).
Right now, supply is still quite tight and demand is still very high, “commented real estate broker Christopher Avallon.”
Even if rates rise and inventories do not rise, we will see more of the same beginning in 2021.