Is the U.S. Housing Market Going to Crash?

When it comes to the real estate market, the question on everyone’s mind is whether we are on the verge of a major downturn. Across the nation, buyers, sellers, and investors are watching closely as property prices continue to climb, despite significant economic pressures. This article delves into the dynamics of the current housing market, examining trends, economic indicators, and expert opinions to determine if a market crash is imminent.

housing market

Read: Sandwich Lease Strategy for Real Estate Investing

Persistent Growth in Home Prices

The housing market continues to see rising prices, defying expectations for a slowdown. According to the National Association of Realtors (NAR), median existing-home prices in March rose by 4.8 percent from the previous year. This marks the ninth consecutive month of year-over-year increases. Additionally, the S&P CoreLogic Case-Shiller home price index reported a 6 percent increase as of January.

The consistent rise in home prices contradicts the earlier forecast of a post-pandemic market cooldown. Instead of slowing down, the market has experienced ongoing price hikes. This sustained growth points to strong demand and a lack of available homes, continually driving prices up despite other economic factors that typically slow growth.

This trend shows the real estate market’s resilience in adapting to economic shifts and changing buyer needs. It also emphasizes the urgent need for more housing to satisfy ongoing demand. Without more homes on the market, the balance remains in favor of sellers, keeping prices high. This situation poses challenges for buyers waiting for a downturn that hasn’t come.

Record Highs in Home Values

In March 2024, the real estate market saw median sale prices of existing homes hit $393,500. This number is close to the all-time high of $413,800 from June 2022. The surge in home values continues despite fluctuating mortgage rates, which peaked at 8% in October 2023, then dropped to 7.33% by April.

High home prices mainly stem from a critical housing shortage. According to the National Association of Realtors (NAR) in March, there was only a 3.2-month supply of homes, far below the 5 to 6 months needed for a balanced market. This supply-demand gap is driving prices up.

Despite rising mortgage rates, tight housing inventory keeps home values strong, adding pressure on buyers. The ongoing low supply and high demand sustain a competitive market where prices stay high amid economic changes. This environment highlights the challenges in the housing sector, with new listings quickly sold and buyers facing tough competition.

Challenges for First-Time Homebuyers

The swift increase in home prices significantly outstripping income growth presents substantial affordability challenges, especially for first-time homebuyers. Lawrence Yun, NAR’s chief economist, highlights the unsustainable nature of the widening gap between income levels and home prices. This situation creates a tough environment for those attempting to enter the housing market for the first time. While existing homeowners may benefit from increased equity and additional financial leverage from stock market gains, newcomers find the barriers to entry increasingly difficult to overcome. This disparity underscores the growing need for solutions to enhance housing affordability for new entrants.

Outlook for the Housing Market

Experts like Rick Arvielo, CEO of New American Funding, and Skylar Olsen, chief economist at Zillow, predict that home prices will continue to rise into 2024 due to ongoing supply-demand imbalances. This scenario offers little relief for first-time buyers, who find themselves increasingly sidelined by escalating costs.

Furthermore, the high mortgage rates contribute to the growing financial burden for new entrants into the housing market. For instance, the typical monthly mortgage payment has increased by 2.9 percent from last year, adding approximately $63 to monthly expenses.

Market Corrections and Future Projections

Although the housing market is not expected to experience a severe crash akin to the Great Recession, it’s possible that minor corrections could take place. The likelihood of any substantial decrease in home prices across the board remains low due to the ongoing imbalance between high demand and low supply. Some regions, such as Austin, Texas, have experienced modest reductions in home prices; however, these instances are exceptions rather than indicative of a broader national trend. This persistent demand, coupled with insufficient housing inventory, suggests that while localized adjustments may occur, a significant national downturn in home prices is unlikely in the near future.

Key Housing Market Statistics

  • Interest Rates: The average mortgage rate stands at 7.33 percent as of mid-April.
  • Home Sales: Sales of existing homes have declined by 4.3 percent from February to March and are down 3.7 percent year-over-year.
  • Foreclosure Rates: Although foreclosures have increased slightly, they remain well below levels seen during the housing crisis.

The U.S. housing market is still strong, with high demand and low supply driving prices up. Challenges persist for first-time buyers, but the market’s foundation is stable. This stability is fueled by demographic trends and cautious post-recession building rates. Therefore, while the market may cool off, a major crash seems unlikely. The current situation tends to favor those already in the market or with significant capital.

More from this stream