Is the Housing Market Crashing?

Claudine Rydquist Blog Post , Real Estate Leave a Comment

If you’re following the news, all of the headlines about conditions in the current housing market may leave you with more questions than answers. Is the boom over? Is the market crashing or correcting?

Record-low mortgage rates and pandemic housing demand combined with low inventory created the perfect storm for a housing boom. However, since the Federal Reserve has been increasing interest rates, and as mortgage rates rise, it’s not surprising that the market is beginning to slightly cool off. And many experts believe this is a healthy correction that will help to sustain the long-term health of the housing market.

A market crash would be more severe than a correction and is typically caused by an unforeseen event or series of events that trigger widespread panic and selling. The result is a sharp decrease in prices, which can lead to a housing crisis.

This isn’t the housing market of 2008

The housing market during the Covid-19 pandemic is drawing many comparisons to the real estate market of the mid-2000s, but the two periods couldn’t be more different.

The last housing market crash was caused by subprime mortgages, which are loans given to borrowers with poor credit. These loans often came with low introductory rates that would eventually reset at a much higher rate, leading to defaults and foreclosures.

In contrast, the Covid-19 real estate boom is being driven by historically low mortgage rates. What’s more, the types of loans being offered were much different than those that were available during the last housing market crash. The vast majority of loans being originated today are conventional loans, which have much stricter eligibility requirements than subprime loans did.

And with homeowners now leveraging more than $9.9 trillion in home equity and mortgage lenders enforcing strict standards, it’s unlikely the real estate market is heading towards a crash — similar to 2008.

Home Showings Then and Now

The ShowingTime Showing Index tracks the traffic of home showings according to agents and brokers. It’s a good indication of buyer demand. Here’s a look at that data going back to 2019 (see graph below):

Showing Time

The 2019 numbers give a good baseline of pre-pandemic demand (shown in gray). As the graph indicates, home showings skyrocketed during the pandemic (shown in blue). And while current buyer demand has begun to moderate slightly based on the latest data (shown in green), showings are still above 2019 levels.

And since 2019 was such a strong year for the housing market, this helps show that the market isn’t crashing – it’s just at a turning point that’s moving back toward more pre-pandemic levels.

Existing Home Sales Then and Now

Headlines are also talking about how existing home sales are declining, but perspective matters. Here’s a look at existing home sales going all the way back to 2019 using data from the National Association of Realtors (NAR) (see graph below):

Existing Home Sales

Again, a similar story emerges. The pandemic numbers (shown in blue) beat the more typical year of 2019 home sales (shown in gray). And according to the latest projections for 2022 (shown in green), the market is on pace to close this year with more home sales than 2019 as well.

It’s important to compare today not to the abnormal pandemic years, but to the most recent normal year to show the current housing market is still strong. First American sums it up like this:

“. . . today’s housing market looks a lot like the 2019 housing market, which was the strongest housing market in a decade at the time.”

What does that mean for buyers and sellers in today’s market?

For buyers, it means that you may have a bit more negotiating power than you did last year. And for sellers, it may mean your home takes a bit longer to sell than it would have just a few months ago.

And remember, if recent headlines are generating any concerns, look at a more typical year for perspective. The current market is heading towards more typical, pre-pandemic levels.

Let’s connect if you have any questions about our local market and what it means for you when you buy or sell this year.

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