Is the Housing Market About To Crash?

Here are three reasons why you don’t need to worry about a market crash. 

“Are we in a housing bubble?” Mr. Licorice and I get asked this question all the time. People see our rising home prices and assume we’re heading for another crash, but I don’t think there’s anything to worry about. Today I want to share three reasons why we aren’t heading for a housing market crash:

1. Housing supply. Last year, home prices increased by about 15% on average nationwide. This year, prices are still rising, but not as quickly. Things are slowing down, and both buyers and sellers are worried that depreciation will be just around the corner. 

However, our inventory is still historically low. A balanced market has around six months of supply. Right before the last crash in 2007, we had around 11 months of inventory, so our rising prices were artificial and bound to fall. Now, we have less than two months of inventory. As long as the number of homes remains this low, it will be nearly impossible for our market to crash.

Today’s buyers are qualified and making smart purchasing decisions. 

2. Housing demand. The 2000s were a crazy ride for the real estate market. Robert Schiller from the Yale School of Management described it pretty well as “irrational exuberance.” The market wasn’t driven by an organic demand for homes but instead by the fear of missing out and bad lending practices. On the other hand, today’s buyers are qualified and making smart purchasing decisions. 

3. Equity. One of the biggest problems that caused the last market crash was that many new homeowners had little or no equity. People were taking out their equity to buy luxury items to the point where they owed more on their homes than they were worth. This created a massive wave of foreclosures that increased supply and crashed prices. The situation is almost the opposite today. The average homeowner has plenty of equity in their home in case anything goes wrong. 

I don’t have a crystal ball, so I can’t say that we aren’t in a bubble with 100% certainty. However, these three reasons make me think that we won’t be heading for a crash anytime soon. If you have questions about today’s topic or anything else, please call or email me. I am always willing to help!