With recent discussions about the economy and potential recession, it’s understandable if you’re feeling anxious about the housing market. The fear of a market crash is real for many, but here’s some reassuring news: the housing market is not poised for a crash right now.
Understanding the Dynamics of a Market Crash
To grasp why a crash isn’t imminent, let’s look at what typically causes one. Real estate journalist Michele Lerner explains, “A housing market crash happens when home values plummet due to a lack of demand for homes or an oversupply.”
Here’s why those conditions don’t apply to today’s market:
1. Demand for Homes Exceeds Supply
A crucial factor that contributed to the 2008 housing crash was an oversupply of homes. Today, we face a very different situation. A balanced market typically has a six-month supply of homes. However, current data from the National Association of Realtors (NAR) shows only a 4.2-month supply, indicating demand surpasses supply.
Lawrence Yun, Chief Economist at NAR, clarifies, “We simply don’t have enough inventory. Will some markets see a price decline? Yes. [But] with the supply not being there, the repeat of a 30% price decline is highly, highly unlikely.”
In most areas, the shortage of homes is keeping prices stable or even pushing them higher, the opposite of what would happen in a crash.
2. Unemployment Rates Are Low
During the 2008 crisis, high unemployment rates led to many homeowners struggling to make mortgage payments, resulting in foreclosures. Today, the scenario is much more stable, with unemployment at a much lower rate of 4.1% compared to the 8.3% during the 2008 crisis.
With more people employed and earning an income, they’re not only able to maintain their mortgage payments but are also in a position to buy homes, further driving demand.
Learning from the Past
Rick Sharga, Founder and CEO at CJ Patrick Company, emphasizes, “Literally everything is different about today’s housing market dynamics than the conditions that led to the housing crisis.” The combination of strong demand and low unemployment are key indicators that the market is fundamentally sound.
Bottom Line
While concerns about the economy might make headlines, the housing market today is far stronger than it was in 2008. However, since real estate is inherently local, it’s vital to stay informed about your specific area. If you have any questions or want to understand how these dynamics affect your local market, feel free to reach out. Let’s discuss how you can navigate the current market with confidence.