Is a housing crash looming?

Back in November 2022, my very first article was titled “Is this 2008 all over again?”?I chose to write this article based on the fact that heading into 2023, mass media and others were leading everyone to believe that we were going to get into this massive housing market crash.?Well, we haven’t really seen it.?For context, a housing market crash relates to the prices of homes.

In a recent Fannie Mae article, Fannie Mae admitted that strong homebuyer demand is providing more support for home prices than economists at Fannie Mae had expected at the beginning of the year.?We are coming off of record-breaking home prices as of Q1 2022.?Home prices were up 20% on average.?The graph from statistia.com (above)?shows that the peak of the median price of existing homes was over $400,000.?This was the record median price of existing homes we have ever seen in this country.

Looking at the next graph, where the baseline is 0%, that is when you reach that point housing prices will stay flat.?In Q1 of 2022, home prices appreciated or went up 19.6%, Q2 18.5%, Q3 12.9%, and Q4 8.7%.?In Q1 2023, home prices went up 4.5%.?This timeline shows a decrease in the percentage of HOME APPRECIATION.?Do not be confused.?Home prices did not decline by these percentages quarter after quarter.?Home prices went up each quarter, but not as much percentage-wise as the quarter before.?Right now, prices are down about 1.5%, but down from what??THE HIGHEST THEY HAVE EVER BEEN IN THE HISTORY OF THE WORLD!?So values are still way above what they were pre-pandemic.?The graph goes on to show the forecast for home price declines.?The worst they are anticipating (in Q2 2024) is down just over a mere 2.5%. Does this indicate a home price crash??I don’t think so.?They may be down 2-3% over the next year but you need to put context around it (down from what?), which I have above.

Let’s shift to the mortgage rate side of things.?The forecast shows the height of the mortgage rates appears to be in the rearview mirror.?Per Fannie Mae economists, with the economy still looking likely to be enter recession, mortgage rates are expected to continue to decline.?From this point forward, we should continue to see a downward trajectory of mortgage interest rates, which as a result, should help to increase buyer demand and help sellers get off the sideline.?If rates should drop around or just below 5%, you will see a frenzy in the housing market.

On to home sales.?Is it true that home sales are down??Absolutely.?See the graph.?In 2021, we saw just over 6.1 million home sales, in 2022 just over 5 million, and in 2023 projections are just over 4.2 million - that is down, it is a dramatic drop.?That’s what we saw back in 2010 coming out of the Great Recession.?And if we can weather the storm, the graph shows in 2024, home sales are expected to pick up.?

? What would cause this optimism??Because unlike 2010 when home sales dropped dramatically, and inventory rose like crazy, we are not seeing that, which is keeping home prices at bay…in other words, keeping them from crashing!?Not to mention, new home sales soared to one-year highs in March as purchases leaped 9.6%.?Those who were predicting a great crash was to come were telling the story of how new home sales were going to get demolished.?That is simply not the case.?As sellers have been more hesitant to list their current homes with economic and mortgage rate environments, more buyers have turned to new construction, helping boost March’s number.?Homebuyers frustrated by the lack of resale inventory or new listings at high prices are pleasantly surprised by the options and offers available from new home builders.?The median sales price of new homes sold in March 2023 was $449.800, up from $438,000 in February.?The average sales price in March was $562,000, up from $498,000 in February.?Month over month new home sales rose a stunning 170% in the Northeast.?

? In a sense, new construction is the unlikely hero in this housing market because it gives people more options than just waiting for that perfect home to hit the market.?Are we in a housing market crash??I don’t see it.?I don’t see any data that suggests home prices are crashing.?It is yet to be determined to see what the Fed does the rest of 2023.?What is going to happen with mortgage interest rates??And to what extent we will go through another recession remains to be seen.?What we haven’t seen is the house that was worth $400,000 in 2022, which is the highest average home price we have ever seen, now worth $275,000.?We haven’t seen the massive price drop off which would lead a lot of people to believe this is the Great Recession all over again.