Is the housing market going to crash, and if so when? Consumers want to know, so let’s take a look into the current state of the market and the factors that might cause a housing bubble.

There is no denying that 2020 threw everyone a curveball, especially the housing market. Last year, many of us found ourselves sheltering in spaces not suited to accommodate today’s “new normal”. With the introduction of low interest rates, stimulus checks, student loan forbearance, and decreased spending on travel, the ability to save up money for a down payment has been made easier than ever. Buyers are entering the market at a rapid rate looking to take advantage of these benefits while they can.

Of course, this housing market boom doesn’t come without some reasonable concerns. Recently, Google reported that the search question “When is the housing market going to crash?” had spiked 2,450% in the past month.  Additionally, the question “How much over asking price should I offer on a home 2021” also jumped 350% that same week. These two questions further prove consumer concerns for the housing market and where it is heading.

Housing Market Concerns

Given the craziness of last year’s real estate market, it is no surprise that many people are wondering if and when the housing market is going to crash. Here are a few of the most common causes for concern:

Pricing Insecurities

While limited inventory and record low interest rates have been attracting homebuyers left and right, it has also been igniting competition. The market dictates fair market value. When fewer homes are available, buyers have to bid higher to secure a home. If fewer people are looking for home, the price will drop because there are fewer competitors. Sellers are benefiting from today’s sellers market.

However, these high prices aren’t doing much to help out buyers as many homes are now well outside their budgets. That’s why it’s critical to know how much your home is worth to avoid overpricing your property.

Bidding Wars

With pricing insecurities comes bidding wars. Due to the low inventory and increased home prices, buyers are offering well over the asking price to beat out other buyers and secure a home. Luckily, many markets are showing a decrease in mortgage applications. This indicates that many buyers are dropping out of the market. This is likely due to bidding war frustration and lack of affordable housing available. Should this trend continue, home prices will drop.

Increased Foreclosures

During the pandemic, unemployment rates reached nearly 15% in the initial wave before tapering off to 6.8% by the end of 2020. While smaller, this number is still nearly twice the pre-pandemic rate of 3.5%. However, as COVID-19 restrictions are reduced, industries reopen and more vaccines are administered, many markets will see a rebirth of employment opportunities. This economic comeback will likely drive some people back into the cities and help take the competitive heat off of the suburbs.

When will the Housing Market Crash?

In many cities, the housing will cool down from where it is now. However, it is our opinion that the broader market is unlikely to crash or experience a major “correction” in the near future. In fact, we actually believe that many cities and suburbs will continue to see price increases over the next 1-2 years before prices begin to flatten.

Continued and persistent low interest rates are playing a big role in this. In the future, as interest rates rise and inventory levels rise, prices will begin to soften and price growth rates will slow. The slow increase of new construction homes will also help to bring new supply and even out the market. Also, considering how strict underwriting is nowadays, most homeowners can afford the homes they are living in. In other words, a huge foreclosure crisis isn’t likely to be in the cards.

With that being said, that doesn’t mean the market shouldn’t be monitored. With rising interest rates and a continuing shortage of homes, it will be extremely important to pay attention to prices and affordability in the coming months. Luckily, that doesn’t mean that now still isn’t a good time to buy or sell a home.

What this Means for Buyers

Is now a good time to buy? Buyers may face tough competition, but they also have the benefit of lower interest rates to offset some of the costs. While these rates may be rising, buyers still have a chance of locking themselves into lower-than-normal interest rates. A lower interest rate means a lower monthly payment and who wouldn’t want that? If you’re willing to enter into the market’s bidding war, it could definitely be worth it in the long run.  

What this Means for Sellers

Plenty of buyers and fewer homes on the market puts those looking to sell a home in a very good place. Home values have increased dramatically in the past year and listing prices for homes have risen by a whopping 15.4%. When working with an experienced agent, sellers will be able to receive an accurate home valuation, list their home at the right selling price and find the right buyer to purchase it.

If you are in the market to buy or sell, consider working with SimpleShowing! Buyers can receive an average of $5,000 towards closing costs and sellers can list their homes for a reduced 1% listing fee. Buyers can even search homes and book home showings directly from our website.

Our team of experienced local agents work diligently to make the process as easy as possible. Contact us to learn more!

Conclusion

The behavior of the housing market depends heavily on housing demand, supply, and economic indicators. While housing markets may exhibit signs of volatility, the National Association of Realtors and other experts do not necessarily predict a crash similar to the 2008 recession. A balance between buyer demand and housing supply, coupled with relatively low mortgage rates, has kept the median home price in a steadily ascending trend.

The factors contributing to the potential instability in the housing market are complex. Mortgage payments and housing market predictions are inherently tied to economic factors such as job security and wage growth, which are in turn influenced by broader, global events. Recent data has shown that home price growth remains steady, despite a noticeable slowdown in home sales, and this, in turn, may signal the resilience of the market.

House prices, however, remain a point of concern for prospective buyers. Despite the availability of fixed rate mortgage options, the rising median home price is outpacing wage growth, making housing inventory, particularly single-family homes, less accessible for many. On the other hand, if mortgage interest rates increase significantly, buyer demand could cool down, effectively stabilizing prices. Therefore, while market indicators point towards continuous growth, buyers and sellers alike must remain cognizant of the evolving landscape and make informed decisions based on up-to-date market data.