2 Reasons Why the Housing Market Won’t Crash
You might have heard chatter recently about the economy and speak about a possible economic downturn. It’s not a surprise that type of sound gets some people stressed over a housing market crash. Possibly you’re one of them. Here’s the good news– there’s no need to panic. The housing market is not set up for a crash today.
Property journalist Michele Lerner states:
” A real estate market crash takes place when home values plummet due to a lack of need for homes or an oversupply.”
With that definition in mind, here are two reasons why this simply isn’t on the horizon.
1. Need for Homes Is Higher than Supply
One of the most significant factors the housing market crashed back in 2008 was an oversupply of homes. Today, though, it’s a very various story.
It’s a basic general rule that a market where supply and need are well balanced has a six-month supply of homes. A higher number implies supply exceeds need, and a lower number implies demand exceeds supply. The graph below usages information from NAR to put today’s circumstance into context:
The graph compares real estate supply during 3 various periods of time. The red bar reveals there were 13 months of supply before the 2008 crisis, which was far excessive. The gray bar reveals a well balanced market with six months of supply, for context. And the blue bar reveals there are only 4.2 months of supply today.
In other words, there are more people who want to purchase homes than there are homes available to purchase today. So, demand is greater than supply. When that takes place, home rates remain steady or rise– the reverse of a housing market crash.
It’s essential to keep in mind that inventory levels differ from market to market. Some locations may be more balanced, while a few could have a slight oversupply, which can affect rates in your area. Most markets continue to experience a shortage of homes.
Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:
“We just don’t have sufficient stock. Will some markets see a price decrease? Yes. [But] with the supply not being there, the repeat of a 30 percent price decrease is extremely, highly unlikely.”
2. Unemployment Is Still Low
When people are out of work, they’re most likely to have problem making their home mortgage payments and might be required to face or offer foreclosure. That was a big issue during the 2008 monetary crisis. Today, the employment circumstance is far more stable (see graph listed below):
Again, this chart reveals three various periods of time, but this one is the joblessness rate. The red bar represents the 2008 financial crisis when unemployment was extremely high at 8.3%. The gray bar shows the 75-year average of 5.7%. And the blue bar reveals the joblessness rate today, and it’s much lower at just 4.1%.
Now, people are working, earning an earnings, and making their home loan payments. That’s one reason the wave of foreclosures that took place in 2008 isn’t going to happen once again this time. Plus, considering that a lot of people are employed today, lots of are actually in a position to buy a home, and this need keeps upward pressure on rates.
Today’s Housing Market Is Stronger than in 2008
While it’s easy to understand to be worried when you hear talk of an economic downturn and economic unpredictability, but know this: the housing market is in a much better place than it was in 2008. According to Rick Sharga, Founder and CEO at CJ Patrick Company:
” Literally whatever is various about today’s real estate market characteristics than the conditions that caused the real estate crisis.”
Need for homes still exceeds supply, and unemployment stays low. And these are 2 key aspects that will help prevent the housing market from crashing at any time quickly.
Bottom Line
The real estate market is doing a lot much better than it was in 2008, but it’s crucial to keep in mind that property is really local.
It’s always a great idea to stay notified about our specific market. If you have any concerns or want to go over how these aspects are playing out in our location, do not hesitate to connect.
It’s no surprise that kind of noise gets some people stressed about a housing market crash. One of the greatest factors the real estate market crashed back in 2008 was an oversupply of homes. It’s a general guideline of thumb that a market where supply and demand are balanced has a six-month supply of homes. The gray bar reveals a well balanced market with 6 months of supply, for context. It’s crucial to note that stock levels differ from market to market.