Will the housing market crash? Here’s what you need to know

Let’s be real—there’s a lot of fear-mongering in the media about a housing crash. You’ve probably seen headlines like “Is the Housing Market About to Crash?” from Forbes or “A Second Housing Crash Is Coming” from Business Insider, but here’s the thing: 2008 was a pretty unique event, and a lot has changed since then.

Back in ’08, loose lending standards, subprime mortgages, and risky financial products all came together to cause the meltdown. Today? The landscape is very different. Lending practices have tightened up, buyers are more qualified, and there’s a stronger demand for homes than there was back then. Inventory shortages and stricter lending regulations mean we’re in a totally different ballgame.

So, while the media might be stirring up fear, the fundamentals don’t really point to a repeat of 2008’s collapse. Let’s break down what’s happening in the market now and what it means for you.

What is a housing market crash?

A housing market crash happens when home values drop sharply and quickly, leading to a lot of homes being sold for less than they were worth. This often results in more foreclosures (when homeowners can’t make their payments and lose their homes), fewer home sales, and general market confusion.

The housing market crash in 2008 left a scar on the economy, with home prices plummeting due to risky lending practices and an inflated housing bubble. But since then, the market has bounced back hard. Between 2009 and 2019, home prices surged by about 34%, far outpacing inflation. Even though people still worry about crashes when the market gets shaky, the long-term outlook tells a different story. Homes have proven to be pretty stable investments, often holding their value better than even corporate stocks, which can tank during economic downturns.

Here’s where it gets interesting: as of 2024, the median home price in the U.S. is now over $400,000—a major leap compared to the $197,000 median back in 2008. That’s more than double in just over a decade. So, while there’s always noise in the media about another crash (because bad news gets clicks), a repeat of 2008 isn’t expected anytime soon. The financial safeguards, tighter lending rules, and the increased equity most homeowners have built up since then make today’s market a different ballgame entirely.

Plus, if you’re thinking long-term, homeownership has historically been a safer bet than volatile markets. Housing may see some dips, but it usually bounces back and keeps climbing, making it a solid asset over time.

Current market snapshot

High Demand for Homes: Right now, there are more people wanting to buy homes than there are homes available. As of mid-2024, there are only about 4 months’ worth of homes for sale. Typically, a balanced market has around 5-6 months of inventory. Because there are fewer homes than needed, this tends to push home prices up or at least keep them from dropping.

Home Prices Are Likely to Stay Steady or Rise: Experts predict that home prices will either go up a little or stay the same over the next year. Most forecasts suggest an increase in prices between 2% and 4.8%. This means if a house costs $300,000 now, it might cost around $306,000 to $314,400 in a year.

Why a crash is unlikely

1. Limited Inventory: There aren’t enough homes for sale to meet the current demand. Builders aren’t building new homes fast enough to keep up with how many people want to buy. Plus, many millennials—people born between 1981 and 1996—are now reaching the age when they’re ready to buy their first home so we have more buyers entering the already demanding market.

2. Strong Financial Position of Homeowners: Many people who own homes now are financially secure. They have good credit scores and have paid down a lot of their mortgage. Most people with mortgages have fixed rates, meaning their interest rates stay the same, so they’re not affected by changes in interest rates.

Historical Context: When Crashes Happened

The 2008 Housing Market Crash: One of the most dramatic housing market crashes occurred in 2008. It was triggered by a combination of risky mortgage practices and a housing bubble that burst. Many people had taken out subprime mortgages, which are loans given to borrowers with poor credit. When home prices started falling, many homeowners owed more on their mortgages than their homes were worth. This led to a wave of foreclosures and a severe market downturn.

But today, things are different. The Dodd-Frank Act of 2010 made big changes to the way banks give out mortgages. Lenders now have to verify your income and make sure you can actually afford the loan. This law makes it harder for banks to hand out risky loans like they did before, which helps prevent another crash like 2008.

2000s Housing Boom and 2020s Resilience: In contrast, the early 2020s have shown resilience. During the COVID-19 pandemic, many feared a market crash due to economic uncertainty. However, the market bounced back, with strong demand and low interest rates driving up home prices instead of leading to a crash.

To wrap it up

Based on the most recent expert opinions and market data, a housing market crash in 2024 is unlikely. While there may be challenges and some areas could experience cooling, a crash similar to the one in 2008 is not anticipated. Stay informed about interest rates and market trends to navigate the current landscape effectively. For the latest updates on mortgage rates, check out our mortgage rate monitor.

If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.

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