Will The Housing Market Crash Again?

Buying a home is part of the American dream. It can give you a sense of stability, a place to build memories, and an opportunity to grow your wealth. But the dream can turn into a nightmare if the market crashes, leaving homeowners underwater on their mortgages and buyers facing a bleak landscape.

The memory of the 2008 housing market crash is still fresh, and now, with rising interest rates and economic uncertainty, many are asking: Will the housing market crash again in 2024?

This blog looks into the complexities of the current market, reviews historical trends, and explores the factors that could influence its future.

A LOOK BACK: THE 2008 CRASH

The 2008 housing market crash wasn't a sudden event. It was a culmination of several factors. First off, easy credit was a big part of the problem. Lenders gave out subprime mortgages and loans to people with poor credit. This led to a buying frenzy where many people got mortgages they couldn't afford. Another problem was that the risk and responsibility were separated. Investors bought complex financial products called mortgage-backed securities without fully understanding the risk. When many people defaulted on their loans, these products lost value, hurting financial institutions. Also, lax regulations made things worse. There wasn't enough oversight in the lending industry, so predatory practices thrived. Borrowers were often misled about their mortgage terms, and many couldn't keep up with payments. The crash had severe effects, causing millions of Americans to lose their homes and plunging the country into a deep recession.

THE CURRENT HOUSING MARKET: A DIFFERENT LANDSCAPE

The housing market of 2024 presents a very different picture from 2008. Here's why a similar crash is unlikely:

• Stricter Lending Standards: Following the 2008 debacle, regulations were implemented to ensure responsible lending practices. Today, qualifying for a mortgage requires thorough credit checks, documentation of income and assets, and down payments. This reduces the risk of defaults and prevents borrowers from becoming overextended.
• Stronger Financial Institutions: Banks are better capitalized and more risk-averse post-2008. They are less likely to engage in practices that could destabilize the financial system.
• Limited Inventory: Unlike the pre-crash era, a shortage of available homes is a key feature of the current market. This imbalance between supply and demand keeps prices high, acting as a buffer against significant declines.

ECONOMIC INDICATORS AND THEIR IMPACT

The overall health of the economy plays a significant role in the housing market. Let's explore some key factors:

• Interest Rates: The Federal Reserve influences mortgage rates by adjusting its monetary policy. Rising rates make borrowing more expensive and can cool a hot housing market. However, the current rate hikes aim to combat inflation, not trigger a crash.
• Inflation: High inflation erodes purchasing power, making homes less affordable. However, it can also lead to wage increases, potentially offsetting this effect for some buyers.
• Job Market: A strong job market with consistent income growth bolsters buyer confidence and supports continued housing demand.

Understanding these economic indicators can help you anticipate market shifts and make informed decisions.

COVID-19: A DISRUPTIVE FORCE

The COVID-19 pandemic significantly impacted the housing market. Lockdowns and remote work trends fueled a surge in demand for suburban homes with more space. This, coupled with limited inventory, propelled prices upward.

However, the pandemic's long-term effects remain to be seen. Remote work arrangements may lead to a sustained preference for larger homes, impacting specific markets. The economic recovery from the pandemic will also influence housing affordability.

THE ROLE OF REAL ESTATE AGENTS IN UNSTABLE TIMES

A qualified real estate agent is a valuable resource in navigating the complexities of the housing market, especially during uncertain times. Here's how they can help:

• Market Expertise: Equipped with data and experience, agents can explain current market trends and identify areas that align with your needs and budget. They can also help you understand how economic indicators might affect your buying or selling decisions.
• Negotiation Skills: Agents have the expertise and negotiation skills to secure the best possible deal for you, whether you're buying or selling. They can translate complex market dynamics into actionable strategies.
• Guidance and Support: The home buying or selling process can be stressful. Agents provide guidance throughout the process, handling paperwork, scheduling home tours, and ensuring all steps are completed thoroughly and efficiently.

A good agent acts as your trusted advisor, interpreting market fluctuations and helping you make informed decisions based on your specific goals.

START YOUR REAL ESTATE JOURNEY WITH AGENT CAMPUS

The housing market, while slightly complicated, offers great potential for both buyers and sellers. By understanding historical trends, economic indicators, and the current market landscape, you can make informed decisions. A qualified real estate agent is your partner in this journey, navigating the intricacies and advocating for your best interests. 

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The general economic trend seems to be a fast return to the previous trendline once the pandemic is over, with slower unemployment recovery. Due to a lack of information from other studies, the data we have for the response of the housing market alone is based on the 2003 SARS outbreak in Hong Kong. In that instance, there were huge fluctuations in the number of real estate transactions, but real estate prices mostly held steady. And that's a pattern echoed by what we're seeing now. That could be great news.

Will the Housing Market Bounce Back from COVID-19 like Previous Pandemics?

Even though the current indicators match up so far with Hong Kong's experience, it's worth noting the ways in which the SARS outbreak differs from what is happening now. SARS came to Hong Kong in February 2003, peaked in March and April, and vanished for good by the close of June. While many countries have tackled COVID-19 on a similar timeline, the U.S. appears to be in for a more protracted battle. COVID also arrived here in February, but June is in our rearview and, after a dip, new case rates are higher than they've ever been.

It's not just the length of economic duress that's different. It's also the severity. In Hong Kong in 2003, unemployment rose 1.3% as SARS ran its course, climbing from 7.4% to 8.7%. It fell to pre-pandemic levels by the end of the year. In the U.S., the official unemployment rate spiked an incredible 11.2% from February to April. And as many have pointed out, the preliminary April figure of 14.7% may have marked a record high, but it probably lowballs reality. The real figure may have been 20% or higher. It's trending down a bit, but with a new wave of corona and the accompanying business shutdowns, it may stagnate or even rise again.

If Coronavirus Causes a Recession, How Does that Impact Housing Markets?

Economists were flirting with the "R-word" before COVID-19 was a twinkle in anyone's eye. The pandemic brought layoffs and pay cuts that many hoped would be temporary but are looking more and more permanent. The good news is that housing markets tend to stay steady during a recession. The 2008 financial crisis conflated economic downturns and housing crises in our collective minds, but they don't always go hand in hand. In fact, when you disregard the aberrant 2008 bubble, home prices increased in 3 of the 4 other modern recessions. Demand has outpaced housing supply for several years, which will probably keep home prices from falling even during an economic slowdown. And although it's hard to label this "good news," many of the newly unemployed are low-wage workers who weren't in a position to buy a house even before coronavirus.

Will the COVID-19 Mortgage Freeze Hurt the Housing Market?

There's one more important piece in this puzzle. After the lockdown began in March, the Federal Housing Administration (FHA) placed a moratorium on foreclosures to keep home prices from entering free fall as they did in 2008. This is great for homeowners whose income was affected, and it bought time for the market as a whole. But while the FHA stopped the clock for mortgage payments, that didn't protect everyone else up the chain. Loan servicers are still expected to pay investors in mortgage bonds, even as income from borrowers shrinks.

Lenders could pull from capital reserves to pay investors, but not for long. Lenders and servicers could potentially fold, which would worsen the crisis. Even if the infrastructure of mortgage servicing remains intact, without borrower payments, new loans could become impossible. Mortgage bonds play a role in pensions and other investment funds. If they lose value, we'll have even bigger problems. The likelihood of this nightmare scenario has faded due to the Federal Reserve buying up mortgage-backed securities.

Want to Learn More?

The future of the housing market depends on many factors – political, economic, and, at the moment, biological. That's why savvy real estate agents need a well-rounded understanding of the industry. For over 15 years, we've been a trusted provider of online and self-paced real estate education. Check out our extensive course catalog and find out what courses we offer (from the safety of your own home!) that will qualify for credit in your state.