23 Dec Expecting A Housing Crash In 2023? You May Want To Rethink That.
You’ve seen the headlines, and you’ve listened to the news. It’s been nonstop doom and gloom for the better half of 2022. While economists don’t claim to have a crystal ball, they have the advantage of historical data to make informed hypotheses about what will happen. Their best guess about future behavior relies on the housing market crash of 2008, which has informed the conversation around home buying and selling since the start of covid. All of the hype has been focused on one thing: an inevitable crash that will rival or be worse than the 2008 crash.
The only problem with that hypothesis? It’s not entirely accurate. Not according to data, at least.
Yes, mortgage rates are on the rise. Buying cycles have changed, and buyers and sellers are more strategic about spending thousands or even millions on homes and land in the second half of 2022. The sense of hesitation in buying and selling comes from uncertainty surrounding the overall economy and comes with many unknowns, like whether there will be a recession or not. Will there be more housing inventory available to buyers? Will housing prices decline based on demand? Those have become standard questions buyers and sellers are asking themselves in 2022.
The answer is no one knows for sure. But we have data suggesting that a housing crash won’t happen. Here’s why.
- Housing inventory isn’t what it was before the 2008 crash. Pre-2008, more homes were available for sale than eligible buyers. It’s simple supply and demand. Too much inventory and the prices go down. Too little inventory, and the prices go up. That’s where the current housing market is. Even with rising interest rates, simply put, there aren’t enough homes available for purchase in relation to the number of people who want to buy them. Comparing apples to apples, housing inventory in 2007 hovered above 17,000 homes for sale in the United States. In 2022? That number plummets to a little over 4,000.
- Historically, mortgage rates aren’t that high. Yes, they’ve gone up in 2022. There’s no denying that. But the 1.5-3% rates that became the norm during 2020 through early 2022 were a historical anomaly. Those rates were the reaction of a once-in-a-lifetime global pandemic that economists had zero control over. Now that covid is mostly behind us, the buyers locked in those low rates are significantly less likely to sell their homes and risk tripling their mortgage percentage. Buying and selling are more strategic now than in 2008 since the 1-3% rates are unlikely to return during our lifetime, and panic selling as a reaction to the overall market is unlikely.
- We (mostly) learned from our past mistakes. If you’re unfortunate enough to remember the economy in 2008, you can remember how stressful, painful, and damaging it was to millions of people. While the US government is far from perfect, they did learn a valuable (albeit expensive) lesson concerning housing. The housing laws enacted after the Great Recession were created to prevent devastation on that level again. If you’ve purchased a home in the last few years, you know that the requirements to obtain a mortgage are uncompromising. Strong credit scores, significant down payments, and fixed-rate mortgages are now the norm. These requirements safeguard lenders and buyers by ensuring that those who want to purchase a home have the financial longevity to do so. That was far from the case in 2008. Before the Great Recession, buyers needed little more than a social security number to take out loans they likely couldn’t afford, which is why foreclosures went through the roof as soon as the economy faltered. During the Great Recession, foreclosure rates were around 10%. Today? About 2%.
While no one can say with 100% certainty that a housing crash won’t happen, data doesn’t lie. The economy wasn’t what it was sixteen years ago. The housing market certainly isn’t. While the government can’t foresee every possible outcome related to the real estate market, cyclical expectations make buying and selling with confidence in the new year a little easier.
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