Two Reasons Why the Housing Market Won't Crash

Worries about a potential recession and its impact on the housing market are understandable. But the good news is that a housing market crash isn't likely. Let's break down why.

What is a Housing Market Crash?

Real estate journalist Michele Lerner says:

"A housing market crash happens when home values plummet due to a lack of demand for homes or an oversupply."

Why a Crash Isn't Likely

Here are two key reasons why the current housing market is far from a crash:

First: High Demand, Low Supply: Unlike the 2008 crash, where an oversupply of homes flooded the market, today we face the opposite scenario. Demand significantly outweighs supply.

• • A balanced market has about a 6-month supply of homes.
  • In 2008, there was a 13-month supply.
  • Currently, there's only a 4.2-month supply.

The graph below uses data from NAR to put today’s situation into context:

This means more buyers are competing for fewer homes, keeping prices stable or even pushing them higher. While some local markets might see variations, the overall trend is a shortage of homes.

Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains:

"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 percent price decline is highly, highly unlikely."  

Second: Strong Employment: Job security plays a crucial role in housing market stability. High unemployment during the 2008 crisis led to foreclosures and a market downturn. Today's picture is much different.

• • The unemployment rate during the 2008 crisis was 8.3%.
  • The 75-year average unemployment rate is 5.7%.
  • The current unemployment rate is just 4.1%.

With more people employed and able to meet their mortgage obligations, the risk of widespread foreclosures is significantly lower. Furthermore, steady employment fuels buyer demand, further supporting housing prices.

Today's Market is Stronger

Rick Sharga, Founder and CEO at CJ Patrick Company, highlights the difference between the current market and the conditions leading to the 2008 crisis:

"Literally everything is different about today's housing market dynamics than the conditions that led to the housing crisis."  

Key Takeaways

• The combination of high demand, low supply, and strong employment creates a more resilient housing market.
• While economic uncertainty exists, the current market dynamics are far more robust than those that led to the 2008 crash.
• Real estate is local, so staying informed about your specific market is essential.

Bottom Line: If you have questions about our local housing market, let’s connect.