With home prices skyrocketing, there’s been a lot of speculation lately. Are we in a bubble? Will the housing market crash? Will home values come plummeting to the ground again?
Fortunately, those concerns are largely unfounded. Most economists agree that today’s market is nothing like the market we saw in 2008 — and a crash is highly unlikely.
Here are just a few of the conditions that economists say will ward off another crash:
Supply is limited. For-sale listings are near their lowest points on record, and demand is strong. This keeps prices up, as most buyers need to up their bids to compete for the limited number of homes for sale.
Mortgage underwriting is stricter. One of the problems in the last crash was that underwriting standards weren’t as tight as they could have been. As a result, there were loan approvals that shouldn’t have happened, and that led to a wave of foreclosures, which sent home values downward.
Homeowners have lots of equity. Another thing that will stave off foreclosures is the record amount of home equity owners are sitting on now. This prevents homeowners from going underwater on their mortgage (i.e., owing more than it’s worth) if home values drop.
Demand will remain high. The Federal Reserve has committed to keeping interest rates low at least through next year, so mortgage rates are expected to do the same for the foreseeable future. This can keep buyers in the game despite rising prices. Demographic changes — like millennials starting families — will likely also keep demand strong.
Homebuilding materials cost more. New builds are priced higher, too, due to rising material prices. Material shortages are also preventing builders from increasing supply quickly.
In short: The conditions aren’t there for another crash. However, in the unlikely event the market does take a tumble, most homeowners have a great safety net of equity to protect them.
Reach out today if you have more questions about today’s market.
