When is the market going to crash?

Marketwatch.com recently published an intestine article as we watch the real estate market trend and ask:  When is the market going to crash? What is driving home prices to sky rocket during a pandemic?

Google is reporting a staggering number of people researching when the market is going to crash and why the housing market is so hot.  The rapidly rising home prices and low inventory are remanent of the 2006 housing boom and Americans are looking for explanations as to what has caused this trend.

So what are the experts and economists saying?

Suzanne Mistretta, Senior Director at Fitch Ratings states that “Slowing employment recovery and still-high unemployment levels are not supportive of long-term sustainable price growth.”  She further notes that home prices are overvalued by more than 10% with Idaho seeing an inflation of 30%-40%.

Robert Dietz, chief economist at the National Association of Home Builders states “We’re not going to see a crash in the housing market, but we are expecting some cooling on the really unsustainable growth rates that we saw, particularly in 2020,” “When home prices are growing faster than incomes, ultimately that is an unsustainable trend.”

During most part of 2020 Covid-19 when everything came to almost a stand still, the housing market has seen the opposite.  

Americans started rethinking their housing choices and opting to move to more rural areas or chose to purchase second homes.  Apartment renters look to purchase single family homes in an effort to escape congested areas.

However, in contract to the last boom, lenders are a lot more conservative approving loans as mortgage interest rates continue to hover at an all time low.  The last housing boom and crash was fueled by riskier loans such as adjustable rates that ballooned and not adequately requiring borrowers to show they can afford the monthly payments.  Today, lenders require a lot more documentation to qualify buyers.

Many homebuilder also have changed their strategy and no longer invest in speculative building of spec homes which continues to create a further gap between supply and demand.  Freddie Mac recently estimated that the U.S. is 4 million homes short of being able to meet the demand of home buyers.  In addition, homeowners chose to stay not sell for fear of not being able to find a suitable new home.

While the housing market is going strong during the pandemic, many homeowners found themselves not being able to make mortgage payments due to income loss.  Lenders and lawmakers allowed for requests of forbearance on mortgage payments bringing the numbers to 4 million Americans not making payments.  Many have now resumed making payments but the number in mid April 2021 still hovered at 2.3 million. Consumer Financial Protection Bureau recently proposal to extend foreclosures until 2022 allowing borrowers more time to negotiate and change their mortgage terms.  The silver lining is that homeowners continue to gain equity and will probably be able to sell their home for profit.

Mortgage rates are going to be key to slowing down the growth of home prices, pushing some buyers out of the market as affordabilty is going to decrease.