Another Housing Market Crash WON’T Happen. Here’s Why.

There’s a lot of uncertainty hanging over us—the coronavirus closing businesses left and right, stock market volatility sending stocks plummeting, the Fed cutting interest rates to near nothing—but we want to reassure you that another housing market crash is not on the horizon.

Here’s Why We Aren’t In Store for a Housing Market Crash

not another housing market crash

After the major real estate market crash of 2008, it’s easy for buyers and owners alike to feel more than a little wary. Buying at the wrong time can be financially and emotionally devastating, so it’s not surprising that more than a few people are rethinking buying in this uncertain time.

But a housing market crash isn’t inevitable. Here’s why.

Mortgage standards are entirely different

qualifying for a mortgage

One of the reasons the housing market soared in the mid 2000s (and then inevitably crashed) was that it was incredibly easy to qualify for a mortgage. In fact, the Mortgage Credit Availability Index shows that it was almost five times easier to get a mortgage in the 2006 – 2008 range than it is today.

In translation: During the housing bubble, people who should not have qualified for a mortgage at all were buying homes they could not realistically afford.

Prices aren’t skyrocketing

rising prices

Over the course of the last six years, housing values have increased slowly and steadily over time—at an average rate of about 5%. Compare that to the soaring prices of the housing bubble—where rates soared to over 12%—and you’ll see that prices aren’t skyrocketing out of control as they did back in the early 2000s.

There’s an inventory shortage, not surplus

sold sign on a raleigh home

A “normal” market has approximately six months of inventory (homes for sale). Anything more than that is considered a surplus and will cause demand to lower and prices to drop. In 2007, the amount of inventory soared to over eight months—which caused prices to fall drastically. Today, however, we face the opposite scenario, with only three months’ supply of homes for sale.

Housing is much more affordable

calculating housing costs

Affordability of real estate is about more than price. The income of the purchaser and the available mortgage rates must also be taken into account to determine how affordable homes are. Prior to the market crash, prices were astronomically high, income was low, and mortgage rates sat at over 6%—making housing very unaffordable.

In contrast, today’s housing is significantly more affordable; though prices are still high, wages are also high and mortgage rates have decreased to as low as 3.5%. That means you’ll pay less for your mortgage and put less of your income towards it.

People have more equity

equity on a home

During the housing bubble, many owners withdrew equity on their homes as soon as it was available. When the market crashed and home values fell, owners found themselves instantaneously in debt. Many foreclosed on their homes, further worsening home values with a high number of discounted foreclosures and short sales.

This time around, however, owners are exercising a little more caution. In fact, homeowners have cashed out over $500 billion LESS than before.

The Bottom Line: A Housing Crash Isn’t Happening

Economic conditions aren’t the same as they were back in 2008, and buyers and owners are much smarter (partially thanks to hard-earned lessons) than during the housing market crash. These may be uncertain times, but real estate will stay strong regardless.

If you have any questions about how current conditions affect your homeownership, purchase, or sale, Linda Craft and Team is here to chat and share our expert options and advice.

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