How likely is a Real Estate Market Crash?

According to economists surveyed by the Wall Street Journal, they think there's a 28% chance of a recession within the next year. However, they state it won't be a faltering housing market that causes the possible recession. Instead, if it happens, they expect it to be triggered by the Fed's efforts to curb it. 

Economists point to differences between the real estate market in 2008 and today to further their argument. Think back to the recession of 2008. That housing bubble was caused by the easy access to mortgages.

Today's market is influenced by supply and demand and, this time around household finances are stronger and home values remain at historic highs.

Remember anyone with a heartbeat could get a mortgage prior to the 2008 recession. Today, lending rules are much more stringent, leading to far more qualified buyers looking for homes.

Finally, not all recessions are like the recession of 2008 and a recession doesn't automatically equal a housing crisis. If a recession comes to pass, homeowners should ride it out quite well.

Homeowners are sitting on a ton of equity right now that isn't likely to dissipate during the forecasted recession. In fact, during the five recessions prior to the 2008 recession, home prices actually increased. 

If you were hoping for a major downturn to snag a cheaper home, think again. Most housing experts are predicting the market to remain strong for a while. The number of potential homebuyers is plentiful, with Americans who are either Millennial-aged or younger making up half of the U.S. population. This is significant because first-time homebuyers represent the largest share (31%) of people purchasing homes, according to data from the National Association of Realtors (NAR). Most first-time buyers are younger than 40, which means the buyer pool is deep, a good indication that demand will remain strong, especially since housing inventory is still at historical lows.

We won’t see a downturn because the housing market saw little increase in inventory for the past ten years. In a few years, Gen Z will be turning 30 and ready to become homeowners. This means that the demand for homes will be as high, if not higher, while inventory will still be behind in the demand.

Supply just can’t keep up with the demand. The lack of homes for sale is also helping fuel demand, and higher home prices, which is another reason why housing experts say the market will remain strong for years to come. The supply-demand imbalance is the primary reason home prices have escalated so rapidly and it's going to take time to add enough new supply to balance the market.

In a balanced market, the months of supply would be around six months, the time it would take to deplete all homes for sale at the current sales pace. However, in today’s market we have only 1.7 months of supply, showing a drastic imbalance in favor of sellers.

Final thought, don't buy into the media hype. If you're curious about what's really happening in the real estate market reach out to me for industry insights. I'm here to help.