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Will the Housing Market Crash? Here’s What Experts Predict
By Aly J. Yale MONEY RESEARCH COLLECTIVE
Online searches for “housing crash” have surged in recent weeks, reaching their highest point ever at the beginning of July.
It’s no wonder: Home prices have been on a tear for the last two years in Florida and nationwide. When you couple that with waning buyer demand due to higher interest rates, memories of the 2008 housing crash — when too much supply caused home values to plummet — start to emerge.
Fortunately, there are differences in today’s housing market that could keep history from repeating itself.
“People get worried about a housing bubble when they see how quickly home prices are increasing,” says Molly Boesel, chief economist at property data provider CoreLogic.
The latest numbers show national prices up a whopping 20% since last April, and in Florida, the jump is even higher. Tampa housing prices have risen nearly 36% over the last year (the highest of all major metros tracked), while Miami’s are close behind with a 33% jump.
“I think they look at those really high increases and think, ‘Uh-oh, it’s going to fall,’” Boesel says.
But are those fears warranted? And if so, when would that impending crash occur? Here’s what economists and real estate experts had to say on the topic.
Housing market forecast
Skyrocketing home prices are nothing new — and according to forecasts, they’ll probably continue, albeit at a slower pace.
Home prices have been on a steep run-up since the pandemic’s early days, and according to the National Association of Realtors (NAR), the median price on existing homes has now increased 45% since March 2020.
According to CoreLogic’s forecast, though, national home prices are expected to increase by just 6% by April 2023, and in Miami, it’s 9.8%. While those are still increases, they’re a far cry from the double-digit hikes we’ve seen over the last two years.
As for mortgage rates — those will likely keep rising for the next few months at least. Rates could hit 6.5% or 7%, according to Jeff Taylor, co-founder of Florida-based Mphasis Digital Risk and a board member at the Mortgage Bankers Association (MBA). Taylor expects them to level out around 5 to 5.5% by the end of the year.
Still, those higher rates have an impact. Demand has slowed as rising interest rates pushed down affordability, and some prospective buyers were forced out of the market entirely. Homebuying demand is now 16% below last year’s levels — the biggest annual decline since April 2020.
“The market is slowing down right now — and it’s happening nationwide,” says Lindsay Garcia, a real estate agent with Redfin in Miami. “But I don’t think the market is going to crash.”
Other industry pros largely agree with Garcia, but that doesn’t mean that every market is immune to a downturn.
“I expect some overheated markets will see declines in the coming years — although not on the scale of the last housing crisis — while other markets flatten or grow modestly,” says David Meyer, vice president of data and analytics at BiggerPockets, an educational resource for real estate investors.
Why there’s no housing bubble, according to economists
People often think that the fast-climbing home prices are creating a real estate bubble — an overheated housing market that’s about to pop. The term “housing bubble” implies that there is “almost no reasonable scenario in which a future economic situation can support [the] current prices,” says Tom LaSalvia, senior economist at Moody’s Analytics.
But it’s not always that cut and dry, according to LaSalvia, who says “we are currently not likely in a housing bubble.” A key reason for his confidence: the recent spike in housing prices isn’t due to speculative behavior or an assumption that price increases will just continue indefinitely. Instead, it’s due to underlying market fundamentals — basic supply and demand, experts say.
“While the excessive surge in home appreciation is unsettling, much of it is a result of low inventory,” says Shmuel Shayowitz, president at mortgage lender Approved Funding. “Since the housing crash caused by the Great Recession of 2008, the supply of homes has never caught up with buyer demand. The COVID pandemic only exasperated an already low home inventory deficit.”
Despite signs that demand may be lessening, it still outpaces supply. Realtor.com estimates the American real estate market is about 5.8 million homes short of demand in the U.S., while Freddie Mac projects it’s more like 4 million — either way, it’s a huge deficit.
In Florida, the shortage is apparent. Active listings are now near their lowest point in years, and in Miami specifically, listings decreased 33% between May 2021 and May 2022. Throw in the strong demand for Florida real estate, and the state probably won’t see excess inventory anytime soon.
“Inventory is so crazy-low,” says Ana Bozovic, owner of Analytics Miami and a member of the board of governors for the Miami Association of Realtors. “All the factors that are driving people here are not going to go away.”
How to protect yourself from a housing market crash
If another housing crash were to ever come to fruition, there are ways you can protect yourself — both as a homebuyer and as an existing homeowner.
- If you’re buying a home, be conservative with your budget
- Make sure your down payment doesn’t drain your savings
- Choose your location carefully
- Have an emergency fund
- Contact your mortgage servicer
As Meyer explains, “Buy in traditionally strong areas with good economic and population growth. These areas tend to withstand downturns better than exurbs and rural areas and bounce back faster following a downturn.”
On the homeowner side, having a healthy emergency fund is a good way to safeguard against unexpected job loss or financial crisis. Most experts recommend having at least six to 12 months of mortgage payments on hand just in case.
Finally, if problems do arise, talk to your mortgage servicer as soon as possible.
“Those who are proactive and working with lenders have huge advantages over those who delay and only approach lenders after the problems become large and more widespread,” says Hugh Kelly, chair of the Counselors of Real Estate Economic Advisory Council. “If there’s a downturn, you won’t be the only ones in trouble, but you’ll be better off if you are already in good, realistic communication and not waiting until you’re just one of many problems that the bank needs to solve.”
