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Is the Housing Market Set for a Crash?

Is the Housing Market Set for a Crash?

April 11, 2023

Over the past few years, we’ve witnessed rapidly rising prices in the housing sector. But if we look back to the past, we see that high housing costs are not always a great thing for the economy. No one wants to endure another 2008. So, what’s going on in the housing market, and are we set for a crash soon?

No one can answer that question for sure, but three aspects of current market conditions point toward concern.

Home prices versus inflation and incomes. Home prices have indeed risen faster than the rate of inflation. And for the potential homebuyer, the fact that prices have risen beyond the rate of increases to income can be particularly frustrating. When homebuyers can no longer afford homes, pressure on the market could bring prices back down.

A housing shortage. Sources vary, but we’re currently short 2 million to 6 million homes in the US. That’s due in large part to construction slow-downs during the pandemic and supply chain problems ever since. Low supply means higher prices, but with everyone back to work perhaps this problem can be reversed.

Higher mortgage rates. Current mortgage rates aren’t exactly considered “high” by historical comparison. But because housing prices haven’t dropped to compensate for rising interest rates, many homebuyers find a mortgage unobtainable.

Those factors are concerning, particularly considering that all three were present before the 2008 bubble burst. But one factor is not a problem today; laws adopted after 2008 have made subprime mortgages and predatory lending much less common, so homebuyers are less likely to find themselves stuck in mortgages they can’t afford.

If we do continue to see the above factors, a market crash could result. But at the current time, there’s probably no reason to panic. But as always, do call our office if you’re concerned about how market conditions will impact your long-term financial planning.