Is the housing market about to crash?

The U.S. housing market finally started cooling in late 2022 after a record-breaking run that saw home values rocket to new highs and mortgage rates plummet to historic lows. Mass layoffs occurred at mortgage businesses, the “housing recession” was bemoaned by real estate economists, and a fall in home prices appeared imminent.

However, an odd thing transpired on the route to the housing catastrophe: Home values began to increase once more. The most recent Case-Shiller home price index shows that housing prices have been rising for four consecutive months. More than half of U.S. metro areas reported home price growth in Q2 of 2023, according to the National Association of Realtors (NAR), which is just another indicator of continuing price hikes.

There is an asterisk next to NAR’s claim that existing house median sale prices had fallen year over year for five straight months through June. Although June 2023 saw a modest decline in home prices compared to June 2022, this month’s median price of $410,200 was still NAR’s second-highest monthly figure ever tracked, trailing only last June’s $413,800.

Even though mortgage rates have reached 7%, home values have remained stable. The problem is a need for more available dwellings. Inventory shortages have reappeared, and bidding wars have also.

Zillow’s senior economist, Skylar Olsen, concurs that there is an imbalance between supply and demand. According to her most recent prediction, housing prices will continue to rise through 2024, which is good for sellers but bad news for first-time buyers trying to buy a home. According to Olsen, we’re not at the point where prices will suddenly drop.

However, some are preparing for the worst due to a severe slowdown in home sales and a quick increase in mortgage rates. Fed Chairman Jerome Powell told reporters following the Federal Reserve meeting on June 14 that he was closely monitoring the housing market.

Analysts and economists who specialize in housing all believe that any market adjustment will probably be slight. Nobody anticipated price declines of the magnitude that have occurred.

Is the housing market going to crash?

From 2005 to 2007, the U.S. housing market last appeared bubbly. The decline in housing values back then had terrible repercussions. The world economy saw its worst fall since the Great Depression when the real estate bubble burst. Buyers and homeowners are asking the age-old question: Is the housing market poised to crash? as the housing boom is challenged by rising mortgage rates and a looming recession (Bankrate’s most recent expert survey estimated the probability at 59 percent).

While housing economists concur that prices may drop much more, this time, it won’t be as drastically as it was during the Great Recession. The homeowners’ personal balance sheets today are significantly stronger than they were fifteen years ago, which is one clear contrast between now and then. According to a June Redfin analysis, 82.4 percent of all current homeowners had fixed-rate mortgages below the 5 percent threshold. The typical homeowner with a mortgage has excellent credit, a ton of home equity, and a mortgage locked in at a rate considerably below 5 percent.

Additionally, builders have been cautious about their pace of construction since they all too well recall the Great Recession. As a result, there need to be more houses available for purchase.

Existing home prices

According to economists’ long-held predictions, the housing market would eventually cool as home values succumbed to their own success. According to the NAR, the median sale price of a single-family house showed a 0.9 percent yearly fall in June after declining year over year in February for the first time in more than ten years.

However, in general, property prices have increased much faster than salaries. Mortgage rates have more than quadrupled since August 2021, worsening the affordability crisis.

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