When will the housing market crash?
Everyone wants to know what the housing bubble is going to do.
Let’s look at some statistics about the housing market, including:
- where housing prices will go from here
- will the housing market crash
- how interest rates will affect the housing bubble
- what the pandemic did for real estate prices
- a real estate forecast for the next 5 years
- when will prices drop
And much more.
Let’s dig in.
Table Of Contents
- When Will The Housing Market Crash?
- When Will Home Prices Drop?
- Real Estate Forecast Next 5 Years
- Is It A Good Time To Buy A House?
When Will The Housing Market Crash
Wondering when will the housing market crash?
This is going to be an oversimplification of when the housing market will crash.
But, this is how the housing market works.
Housing bubbles and crashes are a function of supply vs demand.
Right now, there are not enough houses compared to the demand.
That’s why housing prices are in a bubble.
New homes are getting built at increasingly faster paces.
But home builders have not caught up to the demand for housing yet.
There needs to be a decline in demand to see a decline in housing prices.
Today’s real estate market is not like those in the early 2000s.
The Great Recession was caused by home sales with sub-prime loans.
Mortgage lenders sold mortgage-backed securities to unqualified homeowners.
Lending regulators were relaxed on the mortgage-backed securities
All this led to the housing market crash in the Great Recession.
The lack of single-family homes for Millennials to buy is causing a housing boom today.
There will be a housing correction with the supply of new housing increases.
Will The Housing Market Crash In 2022
Freddie Mac has housing market predictions.
They believe double-digit home price increases will continue.
At least, this is their housing market prediction for 2022.
They also believe that housing prices will slow down in 2023.
Freddie Mac does not think that the housing market will crash in 2022.
That’s even with the housing market predictions of lower home values.
This is because there is still demand for housing.
Which can help avoid a housing market crash in 2023.
Will The Housing Market Crash In 2023
Again, Freddie Mac does predict that the housing market will crash in 2023.
Many homebuyers are getting priced out of being homeowners.
This is because the housing bubble has made housing unaffordable for potential homeowners.
We expect mortgage originations to grow to $2.1 trillion in 2023.
The 2023 housing market prediction for refinancing originations is $1.1 trillion.
So, will the housing market crash in 2023?
The answer is, “no,” but we will see home prices fall.
The demand from millennials will prop up the housing market.
But the housing market bubble won’t be as inflated.
Meaning that the home prices will level off.
Housing Market Predictions For The Next 5 Years
Let’s look at the housing predictions for the next 5 years.
Will there be a housing correction, leading to a financial crisis?
Chief economists expect mortgage rates to increase.
But, they will remain historically low over the next 5 years.
The number of homes sold will reach a 16-year high.
Price appreciation and rent growth will drop due to reduced demand.
(But can increase due to inflation.)
Affordability of home prices will still be a concern.
But home values will grow at a slower rate as supply increases.
The real estate market over the next 5 years will cool down.
Even though demand in the U.S. housing market is not waning.
Homebuilders will catch up to the demand for new housing.
We will see a reduction in bidding wars with an increase in the number of homes.
Interest Rates
Interest rates are going to affect the housing market the most in the next couple of years.
It will continue to be a seller’s market.
But the mortgage interest rates remaining relatively low will help home buyers.
Number Of Homes Sold
Housing supply will remain the main challenge over the next 5 years.
Especially when you account for the home builders deal with:
- labor shortages
- material shortages
- supply chain issues
Home Price Appreciation
Home prices are increasing in all U.S. real estate markets.
The lack of supply is not only in major metro areas like:
- San Francisco and Los Angeles, California
- New York, New York
- Denver, Colorado
- Miami and Orlando, Florida
- San Antonio and Austin, Texas
- Nashville, Tennessee
- Pheonix, Arizona
Due to a lack of affordability, people are migrating out of these large metro cities.
And they are moving into cheaper housing markets.
Which increases the prices of the single-family homes in those areas.
Because the pool of prospective buyers increases.
And these residents usually have high-income, remote jobs.
And they can pay cash for homes in cheaper real estate markets.
Because they are selling their houses at such inflated prices.
Price appreciation is tough to predict.
There is an increase in the number of homes getting sold.
But a decrease in the number of homes coming onto the market.
Inventory is still below pre-pandemic levels.
Over the next 5 years, the U.S housing market will be propped up by:
- underbuilding of new homes
- increased demand for remote work
- U.S. housing market demographics (Millennials)
It will continue to be a Seller’s market while the supply of homes remains low.
When Is The Housing Market Going To Crash
After the 2020 pandemic’s lockdowns stopped, the housing market boomed.
Chief economists at the time were not worried because of the wave of:
- millennial first time home buyers
- remote workers working from home
- low mortgage interest rates
All these factors supported the price appreciations.
But lately, they are starting to worry that the housing market is going to crash.
Let’s look at a paper from the Federal Reserve Bank of Dallas.
They are warning that a housing bubble is brewing.
And that we are on our way to a crash.
Chief economists believe that we are skating close to a housing bubble.
Especially if home values continue to appreciate so aggressively.
They believe that raising mortgage interest rates will slow the rise in home values.
Which would reduce the pressure on the housing market.
Raising interest rates could help the U.S. housing market avoid a crash.
Raising the interest rates will slow down the increase in home values.
By decreasing the demand slightly.
But mainly by making loans more expensive.
So people cannot offer so much over asking.
Which has created many of the bidding wars and home price growth.
And this will be a more stable market correction.
When Will The Housing Market Crash Again
Will the housing market crash?
Are we in a housing bubble?
Will the housing boom continue?
Let’s look at data from three big sources:
- Zillow
- Redfin
- Freddie Mac
Zillow tells us that the median home price is now $331,533.
In 2021, the median home price was $275,000.
That’s a 20.3% increase in home prices in one year.
Zillow is predicting that home prices will increase 22% in 2022.
The unknown for Zillow is how inflation will hit the U.S. housing market.
Namely, how regulators at the Fed will tighten up monetary policies for Americans.
Zillow believes that:
- demand will continue to outpace supply
- home price growth will hit 22%
- the average home price in 2023 will be $400,000+
It’s also unclear how a stock market crash could affect housing prices.
Especially when there is still so much demand.
Let’s look at Freddie Mac’s housing market predictions, though.
They are less bullish than Zillow over the next few years.
They think home price growth will not keep increasing.
Mainly due to the affordability of housing for Americans.
They think that price appreciation will still continue though.
Just not at such a rapid pace.
This is due to the supply not outpacing demand.
This is where they agree with Zillow.
Freddie Mac predicts that home price growth will only be 7.6% in 2022.
And, next, let’s look at Redfin’s U.S. housing market predictions.
Redfin’s chief economists believe that mortgage rate increases will slow home price growth.
And that price appreciation will level out to normal rates.
The average price appreciation for the past 25 years has been 3.9%.
According to Black Knight, anyways.
Double-digit home price growth is unsustainable.
Freddie Mac’s prediction is more in line with the historical averages.
But, that doesn’t mean that Zillow and Redfin are wrong.
There is a mismatch between supply and demand.
But, that doesn’t make the U.S. housing market a housing bubble.
When Will Home Prices Drop
Housing prices are directly tied to mortgage interest rates.
When interest rates decrease, prospective buyers can offer more for homes.
When mortgage rates increase, prospective buyers have to offer less.
Housing affordability is a function of monthly payments.
Lenders look at how much someone can afford each month based on their income.
At the current mortgage interest rates, they give them the price of a home they can afford.
All this to say that housing prices will drop when the Fed starts increasing the interest rates.
Is The Housing Market Slowing Down
The housing market is not slowing down.
In 2020, the average time on the market for a house was 21 days.
The average time on the market in 2021 was 19 days.
Today, the average number of days on market is 17 days.
Because new housing demand continues to outpace the supply from home builders.
There is an average of 4.8 offers for every single-family home sold.
57% of homes sold for more than the listing price.
The number of cash buyers has increased 5% in the past year.
And the number of first-time homebuyers has increased by 1%.
This is one of the most widely held housing market predictions for 2022.
It’s that inventory will remain scarce.
But price appreciation will be slower than it was this year.
When Will The Housing Market Slow Down
Wondering when will the housing market slow down?
Let’s look at the fundamentals of the U.S. housing market.
We know that the current housing boom is because of supply not matching demand.
So, we need to look at whether the homebuilders can increase supply.
- We need to build 5.24M more homes to MATCH demand.
- We are building 1.4M new homes per year in America.
- Inventory will remain scarce until supply meets demand.
- Homeowners deciding not to sell don’t think they can find a new home.
- Increased inventory could persuade homeowners to sell their homes.
- Mortgage rates will decrease the affordability of monthly payments.
- First-time homeowners are still competing with all-cash offers.
- Hedge funds and investors own 40% of the homes in America.
Today, housing is in short supply.
Unsold inventory sits at a 2-month supply.
Housing prices continue to increase due to a lack of supply.
The least amount of supply is at the lower end of the U.S. housing market.
That’s between $100,000 and $250,000, which is where most first-time homebuyers are at.
This makes affordability an issue for Millennial first-time home buyers.
In 2022, the supply of homes is down 12.2% from 2021.
According to Realtor.com‘s housing market data.
New properties coming on the market are getting sold quickly.
The total housing supply cannot keep up with demand.
So, the housing market will not slow down anytime soon.
To further this, let’s look at the housing inventory for the 50 largest metros in America.
In 2022, housing inventory decreased 16% compared to 2021.
Inventory declined in 44 out of 50 of the largest metros compared to last year.
But six metros saw inventory growth.
Ten metros also saw the number of newly listed homes increase compared to last year.
Real Estate Forecast Next 5 Years
Realtor.com forecasts see home prices continue to grow for the next 5 years.
Almost 45M Millennials are entering the market as first-time homebuyers.
2022 will have the 2nd highest level of home sales in the past 15 years.
First-time homebuyers need to gain affordability over the next 5 years.
Affordability in mortgage payments and down payments.
And fewer investors need to be winning bidding wars against them.
That is if we want to see an increase in homeownership for Americans.
Sales of homes between $100,000 and $250,000 were down 21% year over year.
Sales of properties between $750,000 and $1 million increased 30%.
Sales of properties above $1 million increased 25%.
Cash sales accounted for 28% of total sales.
First-time buyers were responsible for 30% of sales.
Investors were responsible for 18% of sales.
The fact is that it’s more lucrative for home builders to build expensive new homes.
More new homes need to get built for first-time homeowners.
Housing Market Predictions 2022
Zillow’s housing market prediction for 2022 is that home prices will increase up to 17.8%.
They expect more than 6.4M homes to get sold in 2022.
They claim that the average home value will be $400,000 by the end of 2022.
But the real average home price for 2022 is $507,000.
According to Fred economists’ research on single-family home sales.
For reference, the average home value for 2020 was $383,000.
That’s a 32% increase in 2 years.
Housing Market Predictions 2025
Let’s look at the current U.S. real estate market trends.
We expect the housing market to remain strong.
The fundamentals of supply and demand will keep a market correction from happening.
At least for the next few years while home builders increase the number of homes on the market.
Studies show that we need 5.24M new homes to get built.
The U.S Census shows that 12.3M households got formed between 2012 and 2021.
But, in that same period, only 7M new single-family homes got built.
We will continue to see demand for homes increase.
We are currently building 1.4M homes per year.
This means we have at least 4 years until we meet the demand for housing.
Is It A Good Time To Buy A House
The market is a seller’s market.
And homebuyers need to be fast to make offers.
Especially when facing bidding wars on single-family homes.
But, in lieu of bidding wars, you need to know your budget.
This means you should run your numbers through a mortgage calculator.
And figure out how mortgage rates and the listing price affect your monthly payment.
You should be working inside of your budget.
This way, if you get into a bidding war, you have wiggle room.
But, even if you pay a little extra, it’s not a huge deal.
The fundamentals of the U.S. housing market are still strong.
The demand from the Millennial generation will take a few years to meet.
Interest rates will remain low for borrowers.
Homebuilders need a few years to catch up to the real estate market demand.
Until then, home prices will continue to rise.
This will continue to put pressure on affordability for borrowers.
Mortgage Interest Rates Predictions
Experts’ mortgage rate predictions were that interest rates would increase.
This was due to fighting inflation.
As well as avoiding a housing market bubble like in the early 2000s.
The Fed increased mortgage interest rates.
And mortgage rates predictions claim that the Fed will continue to increase rates.
Especially on adjustable-rate mortgages and home equity loans.
Predictions were that mortgage rates would increase to 4%.
But, they have increased up to 5.28% already.
The affordability of monthly payments will decrease with these increases.
But, investors looking for cheap debt will slow down.
Increasing mortgage rates will stabilize the market.
And help us avoid a huge market correction.
In 2021, the rates got down to 2%.
With a lack of housing and cheap debt, homebuyers were offering over listing prices.
And they were creating bidding wars.
Home values soared because of low mortgage rates.
But what about moving forward?
The fundamentals of housing will continue to drive the housing market.
But, with lower interest rates, home prices will taper somewhat.
The Fed is likely to raise interest rates several times this year.
And its policy has a direct impact on the interest rates.
Fed policy has few repercussions for fixed mortgage rates.
These track 10-year Treasury yields.
Borrowers will see an end to the historically low rates.
Will House Prices Go Down
Home prices increased 18.8% last year.
Will home prices go down at all?
Or will listing prices continue to increase like last year?
The housing market is tighter this year than last year.
Meaning that supply has decreased compared to the demand.
Zillow projected that home values will increase by 16.4% this year.
But, they later came out and said that a 16.4% increase in home values was too conservative.
At least, based on what their data was showing.
They are now estimating that house prices will not go down.
In fact, they now believe that home prices will increase by 22% this year.
Should I Buy A House Now
So, with home prices increasing, should I buy a house this year?
Should you buy a home is a great question.
House prices will not go down over the next couple of years.
Even with mortgage interest rates increasing.
Chief economists believe that higher mortgage rates will slow down increasing house prices.
But it won’t stop it.
The fact is that there’s too much demand for housing right now.
And, with all the money printing, more people have money to pay cash.
You should buy a house as soon as you can if you are on the market for one.
The Great Recession in the 2000s got spurred by too many homes on the market.
The home builders built too many homes.
We still have 4-5 years until we even meet the demand for new housing.
Home prices will continue to increase until the demand gets met.
At that point, home values could have increased 50% on their current trajectory.
In 2008, home prices dropped 30% on average.
(Which led to a massive amount of foreclosures.)
Even a 30% market drop in 5 years would mean that you still came out ahead if you bought today.
Why Are Houses So Expensive Right Now
Why are houses so expensive right now is a function of supply and demand.
Houses are so expensive now because the:
- Fed decreased interest rates
- remote workers leaving large metro areas
- more Millennial first time home buyers entering the market
- higher construction costs due to labor shortages and supply chain issues
- not enough supply compared to the demand for new housing
After the pandemic, the Fed dumped interest rates.
When interest rates decrease, people can afford to pay over the listing prices.
This is because a lower interest rate increases the affordability of monthly payments.
And people naturally can offer more money for homes, resulting in bidding wars.
What’s The Average Home Price In The US
What’s the average home price in the U.S.?
- The average single-family home price in 2022 was $382,000.
- The average condo price in 2022 was $322,000.
- The average home price in the West was $519,000.
- The average home price in the Northeast was $390,000.
- The average home price in the Midwest was $271,000.
- The average home price in the South was $339,000.
The average home price in the US has gone up for a consecutive 120 months.
That’s the longest streak in history.
Much of the average home price growth occurred in the South.
The South had an average home price growth of 21.2%.
Will House Prices Drop Soon
Home prices will not drop soon.
It’s still a seller’s market.
And home values will continue to increase at double-digit percentages.
Even with bad affordability, homeownership will be more accessible due to:
- low-interest rates
- increased savings
- a stronger job market
Realtor.com data suggests that home demand is tempered by:
- rising interest rates
- bidding wars on listing prices
In 2022, the nationwide median listing price was $405,000.
That’s a 13.5% increase from 2021. And a 26.5% increase from 2020.
In the large metro areas, home prices grew an average of 9.1%.
Let’s look at how many listings have had to drop their asking price.
In 2022, the number of listings that had to drop their price was 5.8%.
Compare that to a 9% average between 2017 and 2019.
25 of the 50 largest metro U.S. housing markets saw an increase in listing price reductions.
Another way to measure whether housing prices will drop soon is the price per square foot.
In 2022, we saw a 15.7% increase in the price per square foot.
This is the median listing price for a 2,000-square-foot single-family home.
The price per square foot increased 20.3% in 2021.
Prices are not dropping soon.
But the increased prices are slowing down.