Reasons Why We’re Not Headed For a Housing Market Crash

Sherry Riano, FHM Loan Officer, contributed to this article.

There’s been a lot of concern from prospective home buyers and existing homeowners over the past several months. With inflation continuing to rise and interest rates headed in the same direction, many people are rightly concerned about their ability to buy or sell a house. 

These market shifts have even caused concern and speculation about the potential of another housing crisis. After all, for many Americans, we can still feel the gravity of the 2008 recession. 

But, it’s important to note that there are key differences between our current economy and the previous recession and housing crisis. The fundamental pieces of our housing market still remain strong. I’ll explain what those are, what you should expect, and what you shouldn’t be concerned about. 

Are we in a Bubble? 

A term that gets thrown around in any market is a bubble. Whether it’s houses, tech, or another industry when a period of rising values and expansion gets too high, some begin to question if it’s a bubble waiting to pop. In literal terms, that means a dramatic decrease in the market, which can wipe some investors or homeowners out of the market completely. 

During the last financial crisis, this happened to the housing market in the US. Some families had homes that they owed more on than they were worth once the bubble burst and home values adjusted downwards. 

A key difference between then and today’s market is that home prices have risen steadily over the past decade, as opposed to rapid, unchecked growth. During the pandemic, home values did rise somewhat abruptly in some locations. But even those are already starting to come back down across most of the country. 

What that means is that rather than a bubble bursting, we’re seeing a normal market correction. In places where prices spiked too high, they are adjusting appropriately without causing the mass chaos of a housing crash. 

This is a good indicator of the market balancing itself at work, preventing a widespread housing crash. 

Housing Inventory is Still Limited 

Home valuations are just one part of the equation, though. Supply and demand play just as important of a role in the housing market as they do in any other. 

During the 2008 housing crash, the market was flooded with homes that were foreclosed on because homeowners owed more on them than they were worth at the time. This compounded the issue of decreased home values, because while they were already tanking, foreclosures piled on more inventory, pushing them down even further. 

Fast forward to today, and we’re in a completely different place. Even as prices cool off, inventory is still limited. Put simply, there are not enough houses for the amount of people waiting to buy them. Even as builders scaled up during the pandemic, they couldn’t meet the rising housing demands. 

This is good news for the housing market, because as long as demand outstrips supply, it helps keep a lid on any bubble-bursting concerns. 

Homeowner Equity is at Decades High 

We already covered how homeowners affected by the previous housing crisis often owed more on their homes than they were worth once values started to plunge. 

There’s some good news for homeowners today in that even though valuations are adjusting down slightly in some areas, most have gained a lot of equity in the past decade. This means that for the vast majority of homeowners, they owe less on their home than it’s worth, and the difference between those two numbers represents their equity position. 

Whether you’re a homeowner right now, or looking to buy your first home, this is a good sign, because it means the fundamental pillars of the housing market are in a good place. Practically, it means there would be a long way to go before we witness foreclosures and subsequent large drops in property values. 

Better Lending Practices are in Place 

The last key indicator of the stability in the housing market that we will cover is mortgage lending. During the previous crash, a primary reason for why we got into the situation we did was because of poor lending and mortgage bond practices. 

Buyers were getting approved for loans that they couldn’t truly afford and that artificially inflated home values above what they were really worth. This go-around, prices rose because of a spike in demand and changes in buyer behavior during the pandemic. 

These are both healthy indicators of market shifts. As opposed to red flags that should raise concerns about the housing market’s stability. 

As you’ve been able to gather going through this piece by piece with me, we are all in a much better position when it comes to the housing market than has been the case in the past. 

The core parts of the housing market are strong, and we’re not seeing warning indicators that a crash is approaching. 

Whether you’re looking to buy your first home, move-up to a bigger house, or move somewhere new, you shouldn’t let the market hold you back. Deciding if you should buy right now should be based on your personal financial situation and goals. 

The Sherry Riano Team is always ready to help you make the right decision for you. Get in touch with me and my team for a free consultation today.