Here’s what you should know about the potential for a housing market crash.
Are we heading into another housing crash like in 2007? Every month, there are thousands of Google searches for terms relating to housing bubble. It’s clearly on people’s minds. This market may feel similar to the one back in 2007 due to all the high prices, but is it?
For the market to be in a bubble, investment needs to be driving demand way beyond where it should be. So are we in a real estate bubble? I don’t believe we are.
First, real estate bubbles are very rare. The 2007 housing crisis happened due to a series of events and decisions that would not occur today, such as the relaxation of lending standards, which have become much stricter in the years since. Adjustable-rate mortgages were popular at the time and much less regulated than they are now. Those mortgages enticed buyers with low introductory interest rates that skyrocketed once homeowners were locked into paying them.
Another reason for the 2007 real estate collapse was that many people had almost no equity in their homes. The riskiest mortgages at the time required nearly no proof that buyers could truly afford them. Once the market fell, many people found out that their loans were worth more than the houses themselves. This meant they couldn’t sell without going into debt. Today, homeowner equity is at an all-time high.
“No one is buying breezily like right before the 2007 crash.”
Additionally, since the crash, new home construction has lagged quite a bit. During the crash of 2007, there were between nine and 12 months of supply of inventory. Today there is only about a one-month supply of homes. This is another reason not to worry about a crash.
Today plenty of buyers are paying with cash or are extremely qualified for their home loans. No one is buying breezily like right before the 2007 crash. The state of our market is much more stable than back then, so there’s no need to worry about another market bubble.
When can we expect home prices to decline? My best guess is that they won’t drop for another five years. None of the factors that can change the market will happen overnight. If you’re waiting for prices to dip, you may be waiting a very long time. Since rates are expected to go up, the sooner you can lock in your rate, the better.
If you have any questions about buying or selling a home, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.