There’s enough evidence piling up to indicate the possibility of a housing market crash. Housing prices are soaring, buyers are lacking, construction of new houses has plunged, and mortgage rates are at the highest since 2008. Despite these concerning signs, experts warn that this is a very different situation from the infamous housing crash of 2008.
Right now, there’s a huge disparity between supply and demand. Less new houses are being built and construction has been halted in a great number of them because the prices for existing properties are so high that fewer buyers are going for purchases.
However, experts say that this is not a sign of an impending crash. A sort of “correction” is expected, but nothing close to the crash of 2008 given the different circumstances.
Part of the issue stems from the COVID-19 pandemic, which saw high demand for new houses and led to many new constructions. Now that the house purchases have sharply dropped, builders that “overbuilt” had to slow down in order to prevent losses. This housing market “boom” is gone and interest in buying new houses dropped once prices went up.
The extraordinary circumstances of the pandemic made these numbers look more dramatic than they actually are, analysts say. Mark Palim told Business Insider: "Higher mortgage rates along with the really strong home price appreciation create affordability challenges for many homebuyers and that's going to slow the market down."
A real estate agent from Indiana, Chuck Vander Selt, is even more skeptical of a crash in 2022, saying: "Population demographics, a decade-long shortage of new construction homes, and the state of the U.S. economy are all present factors that will prevent a housing crash from occurring in the near future."
Listening to other experts, everyone seems to land on the same page:
While a slowdown is expected, an actual crash is unlikely to happen.
The housing bubble of 2008 was caused mainly by lax lending practices that placed borrowers into mortgages they could not afford, and since investors owned bonds backed by those mortgages, it led to a financial crisis.
This event was depicted in the Oscar-nominated movie “The Big Short” in 2015. An excellent resource for anyone interested in understanding more about the complicated cascade of circumstances that led to the burst of the housing bubble.
After the boom in demand during the pandemic and now the dramatic drop-off in interest, the market should start to realign and find a balance soon. There are still not enough homes available to supply market demands, which means that interest in housing remains high – there are just not many buyers right now because of the soaring housing prices and increase in mortgage rates.
More millennials are also expected to buy houses soon, which can help in the “soft landing” that analysts expected for the housing market in the next couple of years, as supply and demand should hopefully find a healthier balance.
