Should You Be Worried About a Housing Market Crash Coming Soon?

Should You Be Worried About a Housing Market Crash Coming Soon?Is there a coming housing bubble crisis? This is a question on a lot of Americans' minds right now as they hear the news about the economy and the shift in the real estate market. 

Some financial companies like the credit reporting agency Fitch have shared that they believe a severe downturn is on the horizon for the housing market. In some areas, home prices have decreased 10-15% and housing activity has fallen around 30% nationally. 

The National Association of Home Builders has shared news of a housing recession because of information showing that builder sentiments have been falling for eight months in a row and the pace of single-family homes has declined for the past five months. 

Even though there is some news of a slowdown, there are other market experts that say we should not be worried about a real estate market crash. 

Here are Some Reasons Why the Market is Still in a Stable Condition

Low Supply and High Demand Continues

Over the past two years, the average home value has increased by 40%. Much of this was brought on by extremely low mortgage rates, a very low inventory of homes for sale, and a much higher pool of interested home buyers looking to get into a home. Since this peak, housing affordability has fallen to its lowest since the Great Recession of 2008. 

But unlike the housing nightmare of 14 years ago, the value of homes has dramatically increased in the past two years. This is much different than the years leading up to the big market crash back then. There was an excess of home inventory and poor lending practices. 

Today there are Stricter Loan Qualifiers

One of the biggest reasons so many people were purchasing homes in the early 2000's up until the big real estate crash was the fact many lenders were almost handing out loans like candy. 

There was still a large inventory of homes to sell and qualified stable borrowers had already purchased a home, lenders began to relax their qualifying rules to make money on loans and get homes sold. 

A Congressional commission found that lenders were giving loans to people they knew would most likely default on loans and that underwriters were breaking rules and engaging in document fraud as well as predatory lending practices. 

Today there are more rules in place to make sure lenders are not giving out money to people in situations where the borrower is highly likely to default. Back in 2008 adjustable rate mortgages with risky balloon payments made up 35% of new loans. Today that number has dropped to just 5%. 

The Crazy Increases are Slowing Down

The past two years brought record increases in home prices. This crazy rate of increase can't go on forever, something has to give at some point. Since the cost of many things across the economy has increased, the Fed has tried to combat it with increasing interest rates.

This has increased the cost of homeownership significantly as just a few hundredths of a percentage point increase can significantly change a monthly home payment. As costs increase demand begins to decline. But does this mean that there will be a housing crash as a result? The major significance here is that there is no excess in the supply of homes. There's also a very low amount of new construction homes it is at its lowest level since June 2020.

Another factor that will help keep people in their homes and able to afford them is that 90% of the loans originated in the last few years were fixed rate and fully amortized. This is from research found by a paper published by the real estate website Zillow. This helps to keep people's current bills affordable and prevent a wave of foreclosure like the one seen in the 2008 crash.

For more information on real estate in Omaha Nebraska and surrounding areas please contact us anytime.

More Great Information for Homeowners

  • What is the Most Effective Way to Mow Your Lawn?
  • What Happens After Your Last Mortgage Payment?
  • The Organization Diet: Cut The Clutter & Improve Your Life
  • Free Apps to Help with Your Next Home Renovation
  • Pros and Cons list for the Homeowner: Gas vs. Electric Furnaces
  • Homeowner Choices + Pros and Cons list: Vinyl vs. Wood Windows

Post a Comment