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- Experts overwhelmingly say that the housing market isn't going to crash anytime soon.
- The last housing crash helped cause today's lack of supply, which is what's keeping prices from falling.
- Mortgage rates, however, are expected to fall this year. This will help make homeownership more affordable.
With high mortgage ratesand even higher home prices, the mood among hopeful homebuyers has been fairly bleak. In Fannie Mae's most recent National Housing Survey, only 21% of consumers said they think it's a good time to buy a home.
Home prices increased 6.38% year over year in February 2024, according to the latest S&P CoreLogic Case-Shiller Home Price Index, and many housing marketforecasters expect them to continue increasing throughout 2024.
"For the potential buyers on the sideline, it will be a bit of bad news," Lawrence Yun, chief economist at the National Association of Realtors, says of this year's housing market. In 2024, homebuyers will likely see increased competition and multiple offers on homes, he says, driving up prices further.
The challenging housing market has many would-be buyers wondering if home prices will ever go down, or if they might crash in the near future. Some are even hoping fora housing market crash.
According to a LendingTree survey, 44% of Americans believe that the housing market could crash this year, and more than one third say they want the market to crash, believing it's their only way to be able to afford a home.
Is there a chance the housing market will crash anytime soon? And if it does, will that make homes more affordable for first-time homebuyers?
Is the housing market going to crash in 2024?
Though many Americans believe the housing market is at risk of crashing, the economists who study housing market conditions overwhelmingly do not expect a crash in 2024 or beyond.
The latest housing market predictions for 2024 from some of the top industry groups see home prices increasing somewhere between 2% to 4.8% this year.
Understanding housing market dynamics
Why are economists so sure that home prices won't crash?
"[There's] just simply not enough supply," Yun says. "So the economics of supply and demand, if there's a shortage, prices simply cannot crash."
The US is currently between 2.3 million and 6.5 million units short of a healthy housing supply, according to Realtor.com. Even if something happened that caused a lot of homebuyers to drop out of the market, demand likely still couldn't drop low enough to push prices down significantly.
Current state of the housing market
While it's perhaps understandable that some hopeful buyers feel their only chance to become homeowners is for the market to crash, they might not realize that the last crash is part of how we got into this situation in the first place.
How the last housing market crash helped create today's conditions
In the mid-2000s, many lenders were offering mortgages to high-risk borrowers without asking for proper documentation. At the same time, home builders were rapidly building new homes to meet increasing demand.
"Home builders were producing right and left, so much home construction," Yun says. "It was one of the most active supply-producing situations. So we had an oversupply."
When the housing market crashed, leading to the Great Recession, it destroyed the home-building industry. Many companies went bankrupt, and a lot of builders permanently left for jobs in other industries.
In the years that followed the recession, the industry struggled to recover, and few homes were built as a result. Now, more than a decade after the end of the Great Recession, homebuyers are still feeling the effects of the last crash.
Predicting a housing market crash
Housing market crashes typically happen when there's an imbalance of supply and demand. But there are a lot of things that can cause this imbalance, whichmakes crashes hard to predict.
How low demand can cause a housing market crash
A sudden drop in homebuying demand can lead to a housing market crash. This can happen if a lot of would-be buyers lose their jobs during a recession, and are no longer able to afford to buy a house. If no one is buying houses, then home values plummet.
Lower demand also typically occurs when mortgage rates are high. This alone often won't be enough to cause a crash in prices. But if supply is also relatively high, a moderate drop in demand could cause home prices to go down.
How an increase in supply can cause a housing market crash
Though it might be hard to envision inthe current market, it's possible to have an oversupply of homes. This can happen if builders construct too many homes in a given area, or if an economic downturn causes many owners to lose their homes to foreclosure. In this scenario, not only would a lot of new homes be released onto the market, but the economic conditions could also prevent other buyers from purchasing those homes.
Shifts in supply or demand don't always mean a crash is imminent. Prices can plateau or dip slightly without crashing.
What a housing market crash would mean for homebuyers
Anything is possible, and nobody has a crystal ball to see for certain what will happen in the housing market in the coming months and years. If the marketwere to crash, would that make it easier to buy a home?
It's possible, but it depends on what caused the crash in the first place. If it's anything like the last crash, where many workers lost their jobs, taking advantage of lower home prices won't be possible for many homebuyers. And given the current supply conditions, it's highly unlikely that we'd see prices fall significantly without there being a larger economic fallout.
Preparing for a potential housing market crash
Right now, you probably don't need to be preparing for the housing market to crash.
But if you're wondering what you can do now to put yourself in a good spot if a crash were to occur sometime in the future, here are some ways you can prepare:
- Keep an emergency fund
- Don't buy more house than you can afford
- Get a fixed-rate mortgage, so you don't have to worry about your payment going up
- Increase your down payment so you have some equity in your home
How to buy a home in a challenging market
Instead of hoping for lower prices, here are some things you can do to achieve your homeownership dreams in 2024.
Expand your search
If you can't afford to buy in your current city, consider looking elsewhere. Talk to a local real estate agent to find out if you can find more affordability a few towns over. Many times, average home prices can differ quite a bit from one zip code to the next. Just be sure to also consider other factors before you move to a new area, such as your commute to work and whether you want to be in a certain school district.
If you live in a high-cost metro area, moving out of the city can make homeownership significantly more affordable.
"For those who have some flexibility to go further out into the suburbs, exurbs, or even smaller towns, the next county, there's better affordability," Yun says.
Wait for mortgage rates to fall
The one good spot of news for homebuyers is that mortgage rates are expected to go down later in 2024. While Yun says we're unlikely to see a return to the historic lows borrowers enjoyed in 2020 and 2021, the latest forecasts suggest 30-year fixed rates could end up somewhere in the mid-to-low 6% range.
Lower mortgage rates mean more people will be able to afford to buy a home. As rates fall, you could potentially save hundreds of dollars per month on your mortgage payment.
Get as much help as you can
Mortgage lenders are increasingly offering incentives to entice prospective borrowers, and many of the best mortgage lenders for first-time buyers offer things like down payment assistance or interest-rate buydowns to help borrowers get into a home.
Make sure you're taking advantage of all the assistance available to you. Look for no down payment mortgages and down payment grants offered by lenders, as well as down payment assistance offered by your state or municipality.
Housing market crash FAQs
What are the key signs of an impending housing market crash?
If homebuying demand suddenly drops or there's an oversupply of homes, that could cause a housing market crash. Increasing mortgage rates, a ramping up of new home production, or an economic downturn can lead to housing market crashes. But these things don't guarantee a crash.
How often do housing market crashes occur?
Some experts say that the real estate market runs in 18-year cycles, meaning you could expect a crash or recession around once every two decades or so. But this isn't a hard and fast rule, and it's better to predict the likelihood of a crash based on the factors influencing a given market.
Can government intervention prevent a housing market crash?
The government can enact policies to help avoid a housing market crash, but it isn't always successful in doing so. Sometimes it happens too fast for the government to react, or policy makers were trying to balance competing interests.
Is it wise to invest in real estate if a market crash is predicted?
Even if a crash is predicted, it doesn't mean it's guaranteed to happen. If you're just looking to buy a home, you should do what makes the most sense for your household's needs and finances, rather than viewing the home as an investment.
What should I do if I own a home and am worried about a market crash?
If you're worried about a market crash, you can talk to a financial advisor about protecting your finances and assets, including your home.
Will housing be cheaper if the market crashes?
A market crash would likely push prices down and make housing cheaper, but it would remain unaffordable for many if the crash was caused by a larger recession.
Is there a housing bubble in the US?
While home prices have increased rapidly, spurring speculation that we could be experiencing a housing bubble, most experts don't believe that we are. This is because even if demand were to plummet, extremely tight inventory would likely keep prices from falling too far.
Mortgage Reporter
Molly Grace is a reporter at Business Insider. She covers mortgage rates, refinance rates, mortgage lender reviews, and homebuying for Personal Finance Insider.Before joining the Insider team, Molly was a blog writer for Rocket Companies, where she wrote educational articles about mortgages, homebuying, and homeownership.You can reach Molly at mgrace@businessinsider.com, or on Twitter @mollythegrace.
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