Good Monday Morning!
Lately, many people I speak with about the local and national housing markets ask me if the housing markets are crashing. That is a really good question, as most people are not dealing with the housing market daily or following its national trends. One would need to do so to properly assess a complex housing market like the one we have today.
The answer is that neither our local housing market nor the national market is crashing. Recently, we have been in a market that was improving quickly as a result of high demand and lower mortgage rates. Along with this, we had an economy that was heading in a very positive direction.
Currently, we are experiencing a slight market dip due to factors that have negatively affected the housing market. All of these changes so far are simply normal market ups and downs. A true housing market crash would involve far more severe downward trends than what we are seeing right now.
At this time, nobody knows the true short- or long-term direction of the housing market, but it would take conditions that are much more severe and long-lasting to create a crash.
The following is an excerpt from Inman News that provides helpful insight into our current housing market and what a housing market crash actually looks like.
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Carruth argues that comparisons to the 2008 housing crash overlook a fundamental shift in how mortgages are underwritten today. “Dodd-Frank changed everything,” he said. “Lending standards are much tighter. The average credit score of homeowners today is significantly higher than it was back then. Buyers today are overqualified in many cases.”
That tightening, combined with historically high levels of homeowner equity, creates a buffer against the kind of widespread distress that defined the last crash.
“I can’t think of a scenario where we see a major home price crash,” Carruth said. “Back in 2008, homeowners had no equity. Today, they have a lot of it.”
Even in the event of a broader economic downturn, Carruth expects the impact on housing to be limited. “If we go into a recession, it doesn’t necessarily mean housing collapses,” he said. “It likely just pulls back inventory.”
A transaction slowdown, not a price collapse
While Carruth dismisses the idea of a price crash, he acknowledges that the market is under pressure in other ways. “There’s no price crash, but we are in a transaction crash,” he said, pointing to affordability constraints, elevated mortgage rates and broader economic uncertainty.
He said that concerns about artificial intelligence’s impact on employment and geopolitical instability — including the war in Iran — have all contributed to buyer hesitation in recent months.
Those pressures have slowed activity, but Carruth argues that, historically, home prices have adjusted just enough to sustain a baseline level of sales. “In a housing recession, the U.S. has never fallen below about 4 million existing home sales annually,” he said. “Prices will adjust to whatever they need to hit that number.”
That doesn’t necessarily mean sharp declines. “It could mean flattening. Some markets are down. But that’s a correction, not a crash,” he added. “There’s a big difference.”
‘Demand is getting bottled up’
For a true housing crash to occur, Carruth said several conditions would need to happen simultaneously, and none are present today. “You would need a flood of foreclosures, forced sellers and no buyers,” he said. “That’s just not the reality right now.”
Instead, the market is being shaped by constrained supply and delayed demand. “When demand pulls back, it doesn’t disappear; it builds,” he said. “It’s like turning off a faucet. When it turns back on, the pressure is even stronger.”
Demographics are also playing a role. Carruth pointed to a large cohort of Gen Z buyers entering their prime homebuying years as a key driver of long-term demand.
Experts estimate pent-up housing demand by comparing current millennial and Gen Z headship rates — the share of people who form their own households — with those of similarly aged cohorts from 2010 to 2014.
The gap between today’s rates and that earlier baseline points to a sizable shortfall. Roughly 1.82 million households that would likely exist under prior conditions never formed, held back by limited inventory and worsening affordability.
Put another way, there are nearly 2 million “missing” households among 18- to 44-year-olds compared to what demographic trends would normally produce.
“There are more thirty-somethings than ever who want to own homes,” he said. “That demand is getting bottled up.”
Rates, geopolitics and the road ahead
Recent volatility in mortgage rates has added another layer of uncertainty. Carruth said the housing market had begun to regain momentum earlier this year as rates dipped, but that progress was disrupted by geopolitical developments.
“The war in Iran really put a wrench in things,” he said. “Rates were coming down, then they shot back up after the conflict escalated and the jobs report came in weak.”
Still, he sees those disruptions as temporary rather than structural. “I really hope this war in Iran ends soon, and if it does, we will be in very good shape,” Carruth said.
Looking further ahead, Carruth expects the housing market to expand over the next decade, even as the industry itself undergoes transformation. “The next 10 years will be historic,” he said. “We’ll likely see fewer agents because of technology and AI, but more transactions and higher prices.”
Have An Awesome Week!
Haas Team Real Estate
541.349.2620