Are We Heading Towards a Market Crash?
As the real estate market is shifting from being a red hot sellers market over the last 2 years, it’s only fair to ask! With interest rates rising, home prices sticking & inflation at a peak, there’s a lot of hope & questions around this topic. So are we heading towards a market crash?
The quick answer is NO. We may see a slight recession over the next few years, but we won’t have a 2008 repeat. There’s no way that anyone (no matter how educated or convincing they may seem) can predict the future of the market with 100% certainty. It’s impossible. But, the way I see it, we have to look at the past, the current & the future to truly grasp the possibilities. So let’s take a look!
Let’s take a look back at the past 6 recessions. In 4 out of the last 6 recessions, home prices actually increased. In 1980 home prices increased by 6.1% & in 1981 they increased by 3.5%. In 2001, home prices increased 6.6% & in 2020 they increased 6.0%. The largest decrease in home prices was in 2008, when home prices dropped by a staggering 19.7% (CoreLogic). Since this was the last true crash that most of us remember, people are afraid, or maybe even hopeful, that we could see history repeat itself.
Here’s why we won’t see a repeat of 2008; the cause is not the same. What do I mean by this? In 2008, the crash was partially caused by loose lending guidelines. Buyers were given loans that were way more than they could afford & ended up being upside down on their home. That’s not the case now. This was brought on by a global pandemic & historically low interest rates. This gave a greater pool of buyers the ability to afford homes.
So just because we have a recession, doesn’t mean that we will have a housing crisis. There’s no trend that says home prices will drop drastically after a recession. While the market will shift & correct, it won’t necessarily crash in order to bring back “normalcy”.
Here we are in 2022 where home prices are high, interest rates are getting higher & gas prices make you want to stay home. We can still feel the effects of the pandemic, but we’re getting back to our normal lives. All of what drove buyers to flood the market 2 years ago is slowly starting to change. People are going back to offices to work, work travel has resumed, & school is back in person!
The motivation to be closer to family, take advantage of those low interest rates, & work from home has now settled. The mad rush of buyers to change their living situation quickly has resided. Now, with increased interest rates, we’re starting to see buyers become a little bit more picky. They don’t *need* to jump on the first home they see, which in turn, makes for less competition. Homes are sitting on the market for longer than just a week, & even decreasing their original asking price to attract buyers. This is the first time in 2 years (& for as long as I’ve had my license), where I’ve seen sellers making concessions in order to sell their homes.
The future of the real estate market is unknown. Economists & experts can try to predict it all they want, but there are so many different factors at play. The general assumption among real estate professionals is that interest rates will keep creeping up to thin out the buying pool. This, in turn, will cool off the buying competition, so we won’t see new listings flying off the shelves. As more listings come on the market (as they always do), sellers will have more competition & will have to consider this when choosing the price to list their home for.
So are we heading towards a market crash? Not unless you consider a crash to be over several years…
The good news for buyers & investors is that the housing market will shift. We will see higher interest rates than those 3’s, but we’ll also see home prices & competition decrease. So your time might be just around the corner!
This is going to be a great time to get your ducks in order & start planning your next home purchase! It may take a year or two for the market to shift, but it’s always better to prepare early. Worst case scenario, you build up your savings & credit & just sit on it, & that’s not a terrible plan either!