Is the Housing Market Headed for Another Crash?

In today’s market, home prices are soaring despite the tepid economy. While the market is continuously inflating, it reinforces the idea that this may be a warning sign. There are many questions that are roaming through our heads dealing with the current market: “As these prices continue to rise, will the market eventually crash?” “Will the United States go into another recession similar to 2008?” These are all questions that need to be taken into consideration and thought through before making the attempt to jump into the market. In today’s blog, we are going to try and ease some of your hesitations and worries dealing with the current market, which may put you in a more comfortable spot to potentially dive-in, head-first! 

Back in the early 2000s, the economy began to implode, which can be the key ingredient in creating a hot market. During this, lending options were beginning to loosen and eventually caused irresponsible mortgage underwriting and hyper-liquidity. When this happens, it can grant loans higher than borrowers can pay, which can end in a foreclosure. During the early 2000s, this happened en masse and sent ripples through the financial system causing the recession in 2008. So, risky loans are partly to blame for the market crash in the past. 

Since then, lenders have become more strict when accepting potential buyers for a loan. This, mixed with the tightening of appraisal practices can result in fewer “risky” mortgages in the financial system. Although there seems to be a rare chance of a market crash, experts still see some parallels between the Great Recession and today’s housing market. For example, we are now seeing an inflated market, which is seen to be a similar occurrence to the market crash in the past. However, there are still some differences that present an unlikelihood of this happening. 

There are many indicators that the housing market will not crash and interest rates will remain lower than normal. The Federal Reserve Chairman, Jerome Powell, explains that the increase in rates will remain gradual as the economy begins to recover. There is an assumption that we should see two increases in the interest rate by 2023, but the timing on when this will happen is unknown. Powell suggests the interest rate will gradually increase to just over 3% by the end of 2021. The Federal Reserve is currently working on keeping rates low and the increase gradual. 

 Covid-19 definitely is to thank for the inflation on the housing market, but it has also caused buyers to purchase larger homes. It is also predicted that single-family homes will continue to increase in demand, which can also present an inflationary gap. Now that offices are beginning to open up, remote options for work are more available. This can cause a shift into suburbs and exurbs along with more home renovations to fit the needs of someone working from home. Encountering all of these items will increase the prices of home construction. 

All in all, there is not an expectation of a crash, but a correction in the inflated prices. The “Easy Money” policy is estimated to keep the market inflated, and the housing shortage will continue to drive up prices. Although it is estimated to correct, this post-pandemic housing market we are currently set in will continue. So, we need to prepare for the long-term effects of this phenomenon. If you are looking to sell, now is probably the best time to do so, but remember that you have to prepare yourself on where to go after your home is sold. 

References: 

Beyer, S. (2021, July 1). Is America's Housing Market Headed For Another Crash? Catalyst. https://catalyst.independent.org/2021/07/01/housing-market-crash/.