You may have heard recent discussions about the economy and concerns over a possible recession. It’s natural for this kind of talk to make some people worry about a housing market crash. But the good news is there’s no need to panic. The housing market is not positioned for a crash at this time.
Real estate expert Michele Lerner explains:
“A housing market crash happens when home values plummet due to a lack of demand for homes or an oversupply.”
With that in mind, here are two reasons why a housing market crash is not likely.
1. Demand for Homes Is Higher than Supply
One of the major factors behind the 2008 housing market crash was an oversupply of homes. Today, the situation is quite different.
In a balanced market, there’s typically a six-month supply of homes. A higher number indicates an oversupply, while a lower number means demand is greater than supply. Data shows that right now, there are about 4.2 months of housing supply, meaning there are more people looking to buy homes than there are homes available.
This imbalance keeps home prices steady or even rising, which is the opposite of what happens in a crash. While inventory levels vary by region, most markets are still experiencing a shortage of homes.
Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains:
“We simply don’t have enough inventory. Will some markets see a price decline? Yes. [But] with the supply not being there, the repeat of a 30 percent price decline is highly, highly unlikely.”
2. Unemployment Is Still Low
Unemployment was a significant issue during the 2008 financial crisis. When people lose their jobs, they may struggle to pay their mortgages, which can lead to foreclosures and increased housing supply. However, the current job market is much more stable.
At the height of the 2008 crisis, unemployment was at 8.3%. Today, the unemployment rate is much lower, around 4.1%. With more people employed and making mortgage payments, the risk of widespread foreclosures is reduced. Additionally, many employed individuals are in a good position to buy homes, which keeps demand high and supports home prices.
Today’s Housing Market Is Stronger than in 2008
While it’s understandable to be concerned about economic uncertainty, the housing market is in a much better position than it was during the 2008 crash. As Rick Sharga, Founder and CEO at CJ Patrick Company, puts it:
“Literally everything is different about today’s housing market dynamics than the conditions that led to the housing crisis.”
Demand for homes continues to outpace supply, and unemployment remains low—two crucial factors that help prevent a housing market crash.
Bottom Line
The housing market today is much stronger than it was in 2008, but real estate conditions can vary by region.
It’s always a good idea to stay informed about your local market. If you have questions or want to understand how these factors affect your area, consider reaching out to a local real estate professional.
