The US housing market is going through a crucial period in 2023 with conflicting opinions on the future of the market. The housing market has been experiencing a period of significant growth in recent years, with record-low mortgage rates and high demand pushing home prices to all-time highs. However, concerns about a housing market crash have started to surface, with some experts sounding the alarm that the US housing market may be on the verge of a crash.
In this article, we will explore the current state of the housing market, analyze the factors that may contribute to a potential crash, and assess whether a market crash is likely to occur in the near future. Some housing analysts are anticipating a more balanced market with single-digit annual appreciation while others fear a housing market crash or collapse in the near future.
Will the Housing Market Crash?
Inflation is soaring, and there is a fear of an impending recession in the country. However, the majority of real estate professionals do not believe that the housing market is in a bubble or poses a threat to the faltering economy.
Housing caused the worst financial crisis in recent memory. When shoddy mortgages crumbled, the nation was left with foreclosures, numerous new houses remained empty, and millions of Americans were suddenly underwater. Throughout the preceding century, the housing market met considerable barriers, but none, with the exception of the Great Depression of 1929, led to the decrease in home values that happened during the Great Recession of 2007.
It is also important to note that not all economic downturns dampen the real estate market. Despite the economic downturn, the home market and demand remained robust during the 2001 recession. The housing market has been subjected to a number of severe hurdles during the course of the previous century; but, with the exception of 1929's Great Depression, none of these challenges have resulted in a decrease in house values comparable to that of 2007's Great Recession.
The housing market's recent pandemic boom with skyrocketing prices, bidding wars, and an influx of investors has parallels to the previous time. However, this time, the majority of real estate professionals believe that the housing market won't crash or trigger a recession and may even assist the country's recovery. The mortgage sector has taken action against loans that ballooned in size or were intended for borrowers to fail. Only purchasers with consistent, verifiable income may now qualify for mortgages.
This has resulted in a significantly lower risk compared to the Subprime lending during the Great Recession of 2005-2007. The majority of bad mortgages have been eliminated, and lenders have stricter requirements on borrowers. The housing shortage is too severe with many more individuals trying to purchase and rent houses than there are available.
Year-over-year home price growth decelerated in 2022 as mortgage rates rose and housing affordability declined. With mortgage rates continuing to remain high, home prices are predicted to decline in the near term. However, experts do not anticipate the widespread unemployment that characterized the Great Recession and also believe that the recession will be quite brief if it occurs. This means fewer homeowners will be unable to pay their mortgages and those who are struggling may decide to sell their homes at a profit.
Many tapped-out homeowners are stepping back as mortgage interest rates rise into the 6%+ range or close to 7%. Some no longer qualify for mortgages big enough to finance the home they desire, others cannot afford the increased rates and prices, and some are taking a wait-and-see strategy out of fear of a recession. As a result, fewer properties are selling, bidding wars are subsiding, and bids beyond the asking price are decreasing. Numerous house sellers have been compelled to reduce their asking prices.
In the event of a recession, mortgage rates are anticipated to decline, which should reintroduce buyers who did not lose their jobs to the housing market. This will increase home sales and benefit the economy as a whole. The housing market can assist the nation in climbing out of a recession.
While the US housing market is experiencing changes in 2023, most real estate professionals do not believe that it will crash or trigger a recession. The mortgage sector has taken action to prevent a repeat of the Great Recession, and the majority of bad mortgages have been eliminated. The housing shortage is too severe, and the majority of Americans are hoping to avoid another 18 months of hardship. The housing market may even assist the nation's recovery in the event of a recession by increasing home sales.
Millennial Housing Demand: A Buffer Against Housing Market Crash
The housing market crash is a concern for many potential home buyers and sellers. However, the increased demand for homes from the millennial generation may act as a buffer against a potential crash. Millennials and Gen Z want more housing. The housing market is one of the most important indicators of economic growth, and it has been showing some signs of instability in recent years. However, the increased demand for homes from the millennial generation may act as a buffer against the housing market crash.
According to the National Association of Realtors' 2022 Home Buyer and Seller Generational Trends report, millennials now make up the largest percentage of home buyers at 43%, with Generation X buying the most expensive homes at a median price of $320,000.
The report also found that most buyers purchased homes in suburban areas and small towns, dispelling the myth that younger generations are flocking to city centers. Millennials, in particular, are more likely to use the Internet to find a home they will ultimately purchase, and 92% of them use real estate agents to help find the right home and negotiate the terms of the transaction.
The trend of younger generations purchasing homes for the first time is also on the rise, with 81% of younger millennial home buyers purchasing a home for the first time, and just under half of older millennial buyers being first-time buyers. Additionally, the percentage of millennial sellers is on the rise, increasing from 22% to 26% over the past year.
Many factors can contribute to the decision to buy or sell a home, and for all home buyers under the age of 57, the main driver was the desire to own a home of their own. Among those 57 and older, the desire to be closer to friends and family was the top reason, followed by the desire for a smaller home.
While younger generations tended to move shorter distances when relocating, the overall buyers expected to live in their homes for 12 years, down from 15 years last year. For younger millennials and the silent generation, the expected duration was only 10 years, compared to 20 years for younger boomers.
However, debt continues to be a significant barrier for many attempting to buy a home, and both Generation X and younger boomers delayed purchasing a home for five years due to debt, the longest of all age groups. Younger millennials had the highest share of student debt at 45%, with a median amount of $28,000.
Despite these challenges, the increased demand for homes from the millennial generation provides a buffer against a housing market crash. This demand is expected to continue to grow as more of the millennial generation reaches the traditional first-time buyer age, and with this trend, the housing market may remain stable even in uncertain times.
When Will the Housing Market Crash Again?
The current state of the real estate housing market, which is currently adjusting to record-high inflation and higher interest rates, is giving real estate companies and experts a run for their money, as the continued pressure of these forces is causing difficulties for those who make future predictions. What are the housing market crash predictions? Before answering this question, it is crucial to comprehend what causes real estate markets to fall in the first place.
First, it is essential to recognize that housing markets do not suddenly crash. Multiple variables will exert pressure on a market over time, eventually leading to its collapse. When home values climb too rapidly, a housing bubble arises. When there's demand and the capacity to buy, it may increase. When there aren't enough houses for sale to match demand, competition drives up prices.
When a housing bubble expands and pressure builds, the housing market may crash. Interest rate hikes slow the economy. Demand and jobs might drop. Oversupply promotes a buyer's market and cheaper pricing. The real estate market might then fall or stall down. How can you know how awful and how fast it will go better? It depends on how sustainable development was before the slowdown and how serious the causes are.
Many concerns remain about the housing market. Critically, while one of the biggest drivers of home price growth has been the lack of supply, higher rates are holding back both potential sellers and new construction. As such, there is no relief in sight for an improvement in the housing supply and the sustainable housing market that would come with increased inventory.
As we enter the second half of 2023, many are wondering whether the housing market is headed for a crash. Speculation about a potential housing market crash has been a hot topic of discussion, and people are eager to know what the future holds. While there are signs of a slowdown in the housing market's year-over-year growth rate, the overall data and forecasts suggest that a crash is unlikely in 2023.
Let us analyze the latest data provided by CoreLogic to gain insights into the current housing market trends and whether a crash is imminent.
National Home Price Trends
As of May 2023, CoreLogic's Home Price Index (HPI) reveals that home prices nationwide, including distressed sales, have increased by 1.4% compared to May 2022. Additionally, on a month-over-month basis, home prices rose by 0.9% in May 2023 compared to April 2023.
Price Forecast
According to CoreLogic's HPI Forecast, the data suggests that home prices will continue to rise in the coming months. The forecast indicates a 1% month-over-month increase from May 2023 to June 2023 and a year-over-year increase of 4.5% from May 2023 to May 2024.
Regional Home Price Trends
The housing market exhibits regional variations in price trends, with some areas experiencing declines while others witness significant gains.
Western States
A significant number of Western states saw prices decline in May 2023 compared to the same period in 2022. This decline can be attributed to out-migration from less-urban locations, where people had moved during the peak of the pandemic. The resulting surge in home prices led to a significant loss of affordability in these regions.
Northeastern and Southeastern Metro Areas
In contrast, Northeastern states and Southeastern metro areas continue to see larger home price gains compared to other parts of the country. This can be attributed to workers slowly moving back to job centers in some areas and settling in relatively affordable places in others.
Expert Insights on Housing Market Crash
Selma Hepp, Chief Economist for CoreLogic HPI, provides valuable insight into the current trends:
“After peaking in the spring of 2022, annual home price deceleration continued in May. Despite slowing year-over-year price growth, the recent momentum in monthly price gains continues in the face of recent mortgage rate increases. Nevertheless, following a cumulative increase of almost 4% in home prices between February and April of 2023, elevated mortgage rates and high home prices are putting pressure on potential buyers. These dynamics are cooling recent month-over-month home price growth, which began to taper and is returning to the pre-pandemic average, with a 0.9% increase from April to May.”
National and State Maps – May 2023
The CoreLogic HPI provides comprehensive measures for multiple market segments across the nation. Here are some key highlights:
- Nationwide, home prices increased by 1.4% year over year in May 2023.
- States experiencing annual declines in home prices include Arizona, California, Colorado, Idaho, Montana, Nevada, New York, Oregon,
- South Dakota, Utah, Washington, and the District of Columbia.
- The states with the highest year-over-year increases in home prices were Maine (7.2%), New Jersey (7.1%), and Indiana (6.9%).
Top Metros
The CoreLogic HPI also offers insights into home price changes in large US metros in May 2023. Miami leads the way with the largest gain, experiencing an 11.8% year-over-year increase in home prices.
Therefore, based on CoreLogic's data and analysis, the US housing market has experienced steady growth in home prices, with certain regions witnessing declines due to specific economic factors. While the overall trend shows a deceleration in annual price growth, the recent momentum in monthly price gains continues.
Where Can the Housing Market Crash?
The housing market is subject to fluctuations and can experience price declines in certain areas. Based on CoreLogic's Market Risk Indicator (MRI), specific markets are at higher risk of home price decline in the coming months. Let's take a closer look at some of these markets:
1. Provo-Orem, UT
According to CoreLogic's MRI, Provo-Orem, UT, stands at very high risk (with a 70%-plus probability) of experiencing a decline in home prices over the next 12 months. The factors contributing to this risk may vary and could include local economic conditions, housing supply, and affordability issues.
2. Lakeland-Winter Haven, FL
Another market at very high risk for price declines is Lakeland-Winter Haven, FL. The potential reasons for this elevated risk could be linked to the local economic conditions, population dynamics, and the overall housing market performance in the region.
3. North Port-Sarasota-Bradenton, FL
Similarly, the North Port-Sarasota-Bradenton, FL, area also falls into the category of markets with a high risk of home price decline. Economic indicators and housing market trends could be influencing factors behind this risk.
4. Cape Coral-Fort Myers, FL
Cape Coral-Fort Myers, FL, is yet another market that is flagged as being at very high risk for potential price declines. Homebuyers and sellers in this region need to be vigilant and consider the market conditions when making decisions.
5. Port St. Lucie, FL
Port St. Lucie, FL, completes the list of markets with a high risk of home price decline. Local factors such as job growth, inventory levels, and demand-supply dynamics could be critical factors affecting the housing market in this region.
It's worth noting that the high risk does not necessarily mean that a crash in home prices is imminent. It signifies a higher probability of price declines relative to other regions. Market conditions can change, and external factors such as economic shifts or policy changes can influence the housing market dynamics. Therefore, ongoing monitoring and consultation with real estate professionals who are familiar with the local market are crucial for making informed decisions.
If you are considering buying or selling a home in these high-risk areas, it may be prudent to evaluate your financial situation, consider the potential impact of a price decline, and consult with experts who can provide guidance tailored to your specific circumstances. This approach will help you navigate the market more effectively and make informed decisions based on the current conditions and potential risks associated with these regions.
Conclusion
In conclusion, while the housing market may be experiencing a slowdown in year-over-year growth, the data and forecasts do not suggest an imminent crash in 2023. Home prices continue to rise, albeit at a slower pace, and market indicators provide a generally positive outlook.
The US housing market is going through a crucial period in 2023 with conflicting opinions on the future of the market. Some analysts fear a housing market crash, while others anticipate a more balanced market with single-digit annual appreciation. Although the market is experiencing changes, most real estate professionals do not believe that it will crash or trigger a recession.
The mortgage sector has taken action to prevent a repeat of the Great Recession, and the majority of bad mortgages have been eliminated. The housing shortage is too severe, and the majority of Americans are hoping to avoid another 18 months of hardship. Housing demand from Millennials and Gen Z is also expected to remain strong. While there may be a decline in demand and the pandemic-induced housing boom may slow down somewhat, there are no signs of a housing market crashing again in 2023.
Sources:
- https://www.realtor.com/news/trends/recession-will-housing-market-survive/
- https://www.noradarealestate.com/blog/housing-market-predictions/
- https://www.corelogic.com/intelligence/u-s-home-price-insights/
- https://cre.moodysanalytics.com/insights/research/q42022-the-outlook-for-the-housing-market/
- https://www.forbes.com/advisor/mortgages/real-estate/will-housing-market-crash/
- https://www.zillow.com/research/zhpe-q2-2022-not-a-bubble-31093/
- https://www.freddiemac.com/research/forecast
- http://www.freddiemac.com/research/forecast/20210715_quarterly_economic_forecast.page
- https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx
