It's been a hot topic of debate for years now: when will the next housing market crash happen? Some say it's already on its way, while others believe that it won't happen until 2023. The truth is, no one can know for sure, however, there are a few things we can look at to get a better idea of when the next housing market crash might occur.
For starters, we can look at the last housing market crash, which occurred in 2008. This was caused by several factors, including subprime mortgages and the failure of Lehman Brothers. While it's true that some of these same factors are still present today, it's important to remember that the housing market has changed a lot since then. For one thing, there are now more regulations in place to prevent another housing market crash from happening.
What are some of the main reasons behind housing crashes?
There are a few different reasons that housing market crashes occur, here are some of the main ones:
1. Economic recession
It's quite obvious that when the economy is in a recession, people are less likely to be able to afford their mortgage payments. This often leads to foreclosure, which in turn leads to a decrease in home prices. If you consider the 2008's housing market crash, occurred during an economic recession.
2. Subprime mortgages
These are mortgages that are given to people with bad credit, or who otherwise wouldn't be able to get a traditional mortgage. The problem with subprime mortgages is that they often have very high-interest rates, which can make it difficult for the borrower to keep up with their payments. This can also lead to foreclosure and a decrease in home prices.
3. Interest rate fluctuation
Interest rates play a big role in the housing market because when interest rates are low, more people can afford their mortgage payments. However, when interest rates rise, it can make it difficult for people to keep up with their payments, which can lead to foreclosure and a decrease in home prices.
4. Supply and demand
The law of supply and demand also plays a role in the housing market. When there is more demand for housing than there is available supply, prices will go up. However, when there is more supply than there is demand, prices will go down. This can be caused by several things, such as an increase in new home construction or a decrease in the number of people looking to buy a home.
5. Inflation
One of the major causes of housing market crashes is inflation. When prices for goods and services go up, it often leads to a decrease in the purchasing power of people's incomes. This can make it difficult for people to afford their mortgage payments and it can lead to foreclosure and a decrease in home prices.
So, are we headed for another housing market crash?
The Federal Reserve Bank of Dallas found signs of a housing bubble in the United States in a blog post on March 29. The sharp increase in home prices does not automatically mean there is a bubble, there are other factors to consider, like:
Shifts in disposable income
The credit cost and having access to it
Supply disruptions
Rising labor and construction materials costs
U.S. home prices have increased by 19.2% over the past 12 months. This is a much bigger increase than in the years leading up to the 2008 housing bust when prices only went up by 14.5%.
Why will the housing market stay stable in 2023?
It is not just one factor that has helped to drive up prices, it is a combination of several things
1. The economy is finally recovering after the pandemic
One of the key factors that have helped to drive up prices is the fact that the economy is finally starting to recover from the pandemic. People are going back to work and they are starting to feel more confident about their financial situation. This is leading to more people looking to buy homes and ultimately, driving up prices.
2. Borrowers won't default their mortgages
One of the main reasons for the 2008 housing market crash was because of the high number of people who defaulted on their mortgages. This is not going to be a problem in 2022 as borrowers are now required to have a higher credit score to qualify for a mortgage. This means that people who are taking out mortgages are less likely to default on them.
3. Most home buyers are millennials and Gen Z
Millennials and Gen Z make up the majority of homebuyers in the current market. These are two generations that are known for being relatively financially responsible. This means that they are less likely to default on their mortgage payments and more likely to keep up with their payments. And it will continue to stay like this for the next few years as more millennials and Gen Z reach the age where they are looking to buy a home.
4. The limited supply of homes can't keep up with the demand
It's not a secret that there is a limited supply of homes on the market right now. This is one of the main reasons why prices have been rising so quickly. The demand for homes is high and there are not enough homes available to meet that demand. This is likely to continue in 2022 as more people look to buy homes and there are still not enough homes being built to meet the demand.
So are we in the midst of another housing market bubble?
Not yet! Even though there are some signs that we could be heading for a housing market crash in the next few years. However, some factors suggest that the market will stay strong. Only time will tell what will happen in the coming years.
As of now, it is still a good time to buy a home, but be sure to do your research and be prepared for the possibility of a market crash. If you are looking to buy a home shortly, be sure to keep an eye on the market and be prepared to act quickly if there are signs that prices are about to drop.
Conclusion
It is still too early to tell if the housing market will crash in 2023, but there are some signs that it could happen. But as for now, it's safe to say that the market is still strong and it's a good time to buy a home. Just be sure to do your research and be prepared for the possibility of a market crash.