Why a Housing Market Crash is Unlikely This Year

Why a Housing Market Crash is Unlikely This Year

by | Aug 28, 2023 | Real Estate | 0 comments

Why a Housing Market Crash is Unlikely This Year

Unfolding the Narrative: Why a Housing Market Crash is Unlikely This Year

Amidst the daily headlines and dinner-table discussions of a possible housing market crash, it’s worth understanding the more nuanced details of our current market conditions. Analyzing key economic indicators and market trends, we can build a case that suggests a housing crash in 2023 is very unlikely. Let’s take a closer look.

1. Continued DemandIt’s all about supply and demand

The housing market, like any other market, is driven by supply and demand dynamics. Currently, demand for housing continues to remain high. A surge of millennial homebuyers, coupled with an increasing trend towards remote work, has created a consistent demand for housing. While some are voicing concerns about a housing bubble, these circumstances are radically different from those that led to the housing crash of 2008. Instead of reckless borrowing and speculation, this demand is fueled by legitimate consumer needs and preferences.

2. Lack of OverbuildingWe simply don’t have enough homes

One of the contributors to the 2008 housing crash was an oversupply of housing. Leading up to the crash, there was a frenzy of construction, creating a glut of homes that far surpassed consumer demand. Contrarily, in our current market, the U.S is experiencing a housing shortage. According to a report from Freddie Mac, the U.S housing market was undersupplied by 2.5 million units in 2021 increasing to over 3.8 million units today. This shortage, coupled with increasing demand, implies that the housing market remains more stable than alarmist headlines might suggest.

3. More Discerning Lending PracticesNo more ‘fog a mirror, get a loan’

The 2008 crash was precipitated in part by careless lending practices, where mortgages were given to those who could not afford them, leading to widespread default. Since then, the lending industry has implemented stringent lending criteria. Mortgage underwriting standards are significantly more conservative now, ensuring that home loans are given to borrowers who are highly likely to repay them.

4. Low Interest RatesInterest rates be a droppin’

Despite minor fluctuations, interest rates continue to remain relatively low historically. While this may not feel accurate given the historically low rates of the last 2 years, overall we are seeing below average rates. This encourages potential homebuyers to enter the market, bolstering demand. While there’s an expectation that rates will now steadily fall over the next couple of years, this will only increase demand, and prices. Low interest rates serve as a buffer against a housing market crash.

5. Economic StabilityInflation is dropping as expected

Amidst inflation and economic uncertainty, the U.S. economy continues to demonstrate resilience and a steady recovery from the effects of the COVID-19 pandemic. With unemployment rates trending downward and GDP growth remaining positive, these indicators suggest an economy that can support a stable housing market.

6. High Home Equity and Low Mortgage RiskEquity through the roof

Another vital aspect of our current housing market is the robust state of home equity. Notably, as of now,

– Approximately 32% of homes in the U.S. have no mortgage at all, which means that these homeowners are at virtually no risk of foreclosure.

– In addition, about 39% of homeowners have more than 50% equity in their homes. The significant equity these homeowners have in their properties acts as a financial buffer, reducing their likelihood of foreclosure. The stability provided by this level of equity contributes to the overall robustness of the housing market.

– This leaves us with only 29% of homeowners who might be at potential risk of foreclosure. Even within this group, the risk is mitigated by the stringent lending practices mentioned earlier, which ensure that most of these homeowners have the financial capability to manage their mortgage payments.

 

Furthermore, the high levels of home equity mean that, should homeowners face financial difficulties, they have the option to sell their homes and still make a profit. This further reduces the risk of widespread foreclosures that could trigger a housing market crash.

 

This broad landscape of high home equity not only provides a safety net for individual homeowners, but also contributes to the stability of the housing market as a whole. Thus, it bolsters the argument that a housing crash in 2023 is improbable.

While it’s important to remain vigilant and monitor market trends, fears of a housing crash this year seem largely unfounded when considering these key factors. Market dynamics and economic indicators instead point towards continued demand and relative stability. Instead of panic, prudence should be the order of the day.

 

It’s crucial to note that predicting economic phenomena is not an exact science. Therefore, while current indicators suggest a low likelihood of a housing crash this year, changes in the broader economy can impact these predictions. As always, it is wise to do your research, stay informed, and make decisions based on your individual circumstances and risk tolerance. That being said, here at the Weinland Team we are happy to answer any questions you have, especially about the Northern Colorado housing market.

 

Disclaimer: The information provided in this article is for educational and informational purposes only and should not be construed as financial advice. Always consult with a financial advisor before making significant financial decisions. The Weinland Team would be happy to suggest amazing mortgage brokers and financial advisors in the Northern Colorado area.

Written by fortcollinsexperience

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