Review of all things Real Estate: Is the housing market going to crash?

I get these questions a lot. When will housing prices fall? Will there be a housing market crash? When is the best time to purchase a house?

Everything I read and listen to indicates that “no,” there isn’t going to be a housing market crash. Prices may flatten if mortgage interest rates rise and continue to lock buyers out of the market but even that is a changing dynamic as rates have dropped from +8% to currently in the low 7%, and even into the high 6% with certain government backed loans.

I have included select bullet points below from various headlines on the internet to make the case, but the easiest point to grasp is there is not enough inventory to meet demand, even with the highest mortgage interest rates in 23 years.

Inventories are very low. The National Association of Realtors says there was a 3.6-month supply of homes for sale in October. Back in early 2022, that figure was a meager 1.7-month supply. This ongoing lack of inventory explains why many buyers still have little choice but to bid up prices. And it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future.

Builders can’t build quickly enough to meet demand. Homebuilders pulled way back after the last crash, and they have never fully ramped up to pre-2007 levels. Now, there’s no way for them to buy land and win regulatory approvals quickly enough to quench demand. While they are building as much as they can, a repeat of the overbuilding of 15 years ago appears highly unlikely. The fundamental reason for the run-up in price is heightened demand and a lack of supply.

Demographic trends are creating new buyers. There’s strong demand for homes on many fronts. Many Americans who already owned homes decided during the pandemic that they needed bigger places, especially with the rise of working from home. Millennials are a huge group and in their prime buying years, and Hispanics are a growing demographic also focused on home ownership.

Lending standards remain strict. In 2007, “liar loans,” for which borrowers weren’t required to document their income, were common. Lenders offered mortgages to just about anyone, regardless of credit history or down payment amount. Today, lenders impose tough standards on borrowers and those who are getting a mortgage overwhelmingly have excellent credit.

The median credit score for new mortgage borrowers in the second quarter of 2023 was a stellar 770, so says the Federal Reserve Bank of New York. “If lending standards loosen and we go back to the wild, wild west days of 2004-2006, then that is a whole different animal,” said Greg McBride, Bankrate’s chief financial analyst. “If we start to see prices being bid up by the artificial buying power of loose lending standards, that’s when we worry about a crash.”

Foreclosure activity is minimal. In the years after the housing crash, millions of foreclosures flooded the housing market, depressing prices. But that’s not the case now. Most homeowners have a comfortable equity cushion in their homes.

Lenders weren’t filing default notices during the height of the pandemic, pushing foreclosures to record lows in 2020. And while there has been an uptick in foreclosures since then, it’s nothing like it was.

Convincing? As I have bemoaned in previous articles how there is lack of consensus among the learned economists, I do believe the above headlines and talking points indicate the housing prices are not going to tumble and there doesn’t appear to be a housing crash on the horizon.

Then to the last question in the introduction paragraph above, when is the best time to purchase a house? The short answer is that prices are not going to come down anytime in the foreseeable future, so the best time to buy is now. When interest rates do come down the higher rates can be refinanced so buy what you can afford before there is increased competition when the mortgage interest rates do recede.

This will be my last article for the year since we are headlong into the holiday season, and it is likely little real estate information will be newsworthy to the end of the year.

Plus, by the time this article is published, it’ll be within a week of Dianna Branche and I getting married. The pace and tempo of activity surrounding that event have picked up pretty crazily already, so real estate will not be primary on my mind.

Have a great Christmas and a happy holiday season, talk with you in January.