Even though the housing market is cooling, this slowdown is not typical of real estate downturns. The number of available properties for sale and home sales has dramatically decreased. The availability of homes for sale is even more limited since homeowners who locked in 3 percent mortgage rates a few years ago are choosing not to sell — and who can blame them, with current rates at 7 percent? This correction won’t be anything like the collapse of real estate prices during the Great Recession when certain housing areas had value declines of up to 50%.

According to Yun, expensive areas like California are most susceptible to a drop in prices. According to Redfin data, that is already happening in notoriously expensive regions like San Francisco, where the median sale price in June was down 8.8% year over year, Oakland, where there was a reduction of 11.3%, and Los Angeles, where the decline was 7.1%.

On the other hand, he notes that “Even in markets with lower prices, multiple-offer situations returned in the spring buying season following the much calmer winter market.” Overall, Yun anticipates little change in national prices.

Five reasons the housing prices is not about to crash

Housing economists point to five compelling reasons that no crash is imminent.

1. Inventories are still very low: According to the National Association of Realtors, there were 3.1 months’ worth of available properties in June. Early in 2022, that quantity was only a meager 1.7 months’ supply. Many purchasers continue to be forced to bid up prices due to the continuous paucity of inventory. Additionally, a price crash in the short term is not possible, given the current state of supply and demand.
2. Builders needed to build more quickly to meet demand: After the previous recession, homebuilders drastically reduced their output and never fully recovered to pre-2007 levels. They must wait to purchase land or quickly obtain regulatory clearances to meet demand. Although they are building as much as they can, it seems unrealistic that they would overbuild as they did 15 years ago. Greg McBride, CFA, Bankrate’s top financial analyst, claims that increased demand and a supply shortage are the primary causes of the price increase. “Supply and demand can balance out again as builders put more houses on the market, more homeowners opt to sell, and potential purchasers are priced out of the market.
3. Demographic trends are creating new buyers: Homes are in high demand. Due to the rise of working from home, many Americans who already had homes during the epidemic decided they wanted larger homes. The millennial generation is enormous and at a perfect age for purchasing. And a growing population that is enthusiastic about homeownership is Hispanics.
4. Lending standards remain strict: “Liar loans,” in which borrowers were not required to provide proof of their income, were widespread in 2007. Regardless of credit history or down payment amount, lenders gave mortgages to the majority of people. These days, lenders have strict requirements for borrowers, and most people applying for mortgages have outstanding credit. In the second quarter of 2023, mortgage borrowers had a high median credit score of 769. According to the Federal Reserve Bank of New York, if lending criteria were relaxed and conditions returned to those of the wild Wild West in 2004–2006, that would be a completely different situation. Additionally, we start to worry about a crash if we notice prices artificially being bid up by lax lending rules.
5. Foreclosure activity is muted: Millions of foreclosures entered the property market in the years following the housing meltdown, driving down prices. It’s not like that anymore. The majority of homeowners have ample equity in their properties. As a result of lenders avoiding serving default notices during the worst pandemic, foreclosures fell to all-time lows in 2020. The number of foreclosures has increased slightly since then, but not to the same extent as before.

All of this points to the conclusion that property prices are still outpacing people’s ability to pay them. But this boom shouldn’t go bust, should it?

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