Debunking the Myth: Why the Housing Market Won’t Crash- Blog

Introduction

In recent times, the question on everyone’s mind seems to be: “Is the housing market going to crash?” This question arises as a result of the lingering apprehensions from the global economic crisis of 2007-2008 and the subsequent housing market collapse. People have grown skeptical about home buying, especially with the current rise in interest rates. However, in this blog post, we aim to provide a well-reasoned and professional perspective on why the housing market is not destined for another catastrophic crash. We will present three compelling reasons for this assertion.

Reason 1: Shortage of Homes on the Market

One of the primary differences between the current housing market and the one leading up to the 2007-2008 crisis is the supply of homes. In the early 2000s, there was an oversupply of homes on the market, causing prices to plummet. The typical healthy real estate market maintains around six months of inventory. Anything beyond this threshold indicates an oversupply, which can lead to falling prices. Currently, the market boasts a supply of only two to four months of inventory, with even less availability in high-demand areas.

This shortage of inventory can be attributed to sustained under-building. As Millennials reach the peak of their home-buying years, demand continues to outstrip the limited supply of available homes. Experts predict that home prices are unlikely to plummet this time, given the persistent shortage of inventory.

Reason 2: Stricter Mortgage Standards

The lax mortgage standards leading up to the 2007-2008 housing crisis contributed significantly to the subsequent collapse. Banks were creating artificial demand by lowering lending standards, making it easy for almost anyone to qualify for a home loan or refinance. This loosening of standards resulted in mass defaults, foreclosures, and plummeting prices.

In contrast, today’s lending standards are far more stringent, ensuring that buyers are better qualified and less likely to default on their loans. These stricter standards have prevented a wave of foreclosures, a phenomenon we witnessed in the past.

Reason 3: Lower Foreclosure Volumes

The volume of foreclosures during the last housing market crisis was a significant factor that contributed to the decline in home prices. The number of homeowners facing foreclosure after the bubble burst was distressingly high. However, today’s homeowners are better qualified, less likely to default on their loans, and have more options to avoid foreclosure. The pandemic, combined with government forbearance programs, allowed many people to stay in their homes and explore alternative solutions to their financial challenges.

The record levels of equity that homeowners have today provide them with opportunities to sell their homes and prevent foreclosures, ensuring that we won’t see a repeat of the massive foreclosure activity that characterized the last housing crisis.

Conclusion

In summary, it is reasonable to assert that the housing market is not on the brink of a crash like the one experienced in 2007-2008. The current market exhibits key differences that make such a scenario unlikely. The shortage of homes, stricter mortgage standards, and lower foreclosure volumes all contribute to a more stable real estate market.

While fluctuations in prices may occur, driven by factors such as overpaying for homes during the pandemic, these fluctuations are not indicative of a market crash. Rather, they are part of the natural ebb and flow of the real estate market. As you consider your own homebuying decisions, remember that owning a home remains a wise investment, offering the potential to build wealth and financial security. Don’t let the fear of a market crash deter you from taking the first step towards homeownership.

It is imperative to acknowledge that the dynamics of the housing market are influenced by a multitude of factors, including unforeseen and unprecedented events like the COVID-19 pandemic. Thus, providing an unequivocal guarantee about market behavior is beyond the scope of any analysis. Nevertheless, it is prudent to observe that the housing market is showing signs of stabilizing, particularly in the El Paso region, with an inclination towards pricing reminiscent of 2019 levels.

It is essential to bear in mind that the intricacies of each market are unique and influenced by diverse local, regional, and global factors. Consequently, while general trends can be identified, it is the local variations that ultimately define the trajectory of housing markets.