When Will the Housing Market Crash? Spoiler: Not Any Time Soon.

The question I get the most as a real estate agent is some variation on: Do you think the housing market is going to crash again soon? As a Millennial I understand why it's such a persistent myth: I've lived through a time where wild swings seem to be the natural way of things, so surely 2008's housing market crash was part of a cycle, and we'll find ourselves there again soon, right? It's easy to misunderstand the facts of the 2008 crash, especially for those of us who were pretty young when it happened, and certainly not educated on such matters. Homes were very expensive in 2007, there was a bubble, and the crash brought prices down. Now homes are expensive again, so why shouldn't we assume something must happen soon to bring the prices back down? It's an idea that has an appealing logic to it!

Unfortunately there's no rule that home buying must become affordable again, and unfortunately there's also a lot of misinformation out there that has been relied upon by a large number of people who might otherwise already be homeowners. The sad fact is that home prices are primarily driven by supply and demand, and in this country we have a BIG problem with supply.

Ironically that problem started with the 2008 housing market crash. Before it happened, there had been a building boom going strong for more than a decade and a half, and in the years leading up to the crash the requirements to qualify for a mortgage had been greatly relaxed. More Americans than ever were able to qualify for home loans, and that increased demand was driving up prices even as builders were scrambling to build as many homes as they could. When the bottom fell out, millions of people defaulted on those loans almost simultaneously, flooding the market with even more homes. It was a tragedy for so many people (10 million people in the US were displaced from their homes), but it was also a tragedy for home builders. Residential construction, in a matter of two years, went from 4.5% of the US GDP to less than 2.4%. Thousands of builders went out of business, and the majority of them never re-entered the market.

The home building industry was so devastated that even now, 16 years later, it hasn't fully recovered. Take a look at the graph below, which shows the total housing starts (new housing units becoming available, including both homes and rental units) per 1000 households. Despite the fact that building has been increasing since about 2011, we still haven't come close to reaching the level we were at prior to the 2008 crash, and there are 33 MILLION more adults in the United States now than there were then. It's worth noting that new rental units are part of this data, so this undersupply is not just a problem for would-be home buyers. There's a reason rent costs so much more now than it did then.

While it is true that high interest rates and expensive monthly payments have reduced DEMAND to some degree (largely by eliminating many potential buyers from the pool altogether), the lack of SUPPLY has also been exacerbated by the same high rates: Those who already own homes are reluctant to sell them and trade their low interest rates for higher ones. If (when) the rates go down, both supply and demand will increase, but it will still be many years before we can solve the underlying supply issue. In some parts of the country (like here in the Pacific Northwest) it will be harder to solve than others due to geological barriers to building, restrictive land use laws, and expensive building regulations.

So what does this mean for all those folks waiting and hoping for a housing market crash? Well, my sincerest wish is that you STOP WAITING. It's not impossible for the market to crash, but with the current supply and demand conditions the only thing that would likely crash it would be an extreme recession event involving high unemployment and mortgage default, and that's a risky (and tbh also cruel) thing to hope for. Who says you won't be the one who loses your job, right?

It's pretty tough to buy a home right now, but it's not impossible. I'm still helping first time buyers into homes, and some of them are even teaming up with friends and family to make it more affordable. Whether it makes sense for any given person or household to buy versus rent is always going to depend on your situation, but there is one thing I am certain about: It is a mistake to make that decision based on the perennial myth of the "Impending Crash"

-Heather Theiss

Facts shared in the text of this blog post are sourced from US census data (census.gov) and the Pew Research Center (pewresearch.org).