The housing market is basically on life support, kicking the bucket any day now, but whatever happens, we won’t see another bubble explosion like the notorious 2008s.
Not a housing market crash
To save your time, we capture the biggest reason why this semi frozen housing market is not likely to crash anytime soon: blame the low inventory.
In a balanced market, a typical home would be on the market for 6 months before selling. For now, even with a 30% year-over-year increase in listings, there’s only enough inventory to last about 3 months. This shows a huge decrease compared to the pre-pandemic era, when inventory levels were roughly double what they are today.
This ongoing lack of housing supply pushes home prices skyward, in which many buyers are left with no choice but to offer above asking price. With barely any houses available (less than 2.5 months of inventory in April and May), prices are soaring towards around $400,000s.
What does it mean?
A housing market crash is unlikely because there aren’t enough homes for sale and plenty of buyers are still interested. Or we can say, there just isn’t enough supply to meet the demand, which constantly keeps prices over the roof.
“There’s just generally not enough supply,” says Mark Fleming to Bankrate, chief economist at title insurer First American Financial Corporation. “There are more people than housing inventory. It’s Econ 101.”
Wade back the 2008 housing market crash
For a more in-depth view, visit our post decoding this bubble crash here. Briefly, a housing market crash is like a big drop off a cliff – prices fall at least 20% from their peak. That’s what happened in 2008, when home prices plummeted over 15%. Foreclosures went crazy, and nobody wanted to buy a house that kept getting cheaper. It was a vicious cycle that made everything worse.
But today’s housing market is a different story.
Neither weak sales nor skyrocketing mortgage rates can trigger the same housing crisis in the 2000s, because demand is always staying up high.
“There will continue to be demographically driven demand; the country has the largest number of young adults between the ages of 25 to 34 in its history. Demand — while somewhat weakened — still outpaces supply, which has led to home prices continuing to rise, despite today’s higher mortgage rates.”, said Rick Sharga, founder and CEO of CJ Patrick Co.
Plus, banks are more careful about who they lend money to these days (tighter lending standards). This means only qualified buyers are purchasing homes. Even though foreclosures are rising a bit compared to recent lows, they’re nowhere near bubble levels, and a bombing housing market crash is pretty much far away.
There’re also a few buzzes going around the glut of newly built homes, and why inventory is still sleeping at the bottom. Explaining this, we can say that after the last housing crash, builders slowed way down and haven’t quite caught up yet to meet today’s demand. Unlike the overbuilding of 2007, obtaining permits and land takes time, making a glut of empty houses unlikely.
And don’t forget about the NAR change this August
After battling lawsuits for years, the National Association of Realtors (NAR) has agreed to pay $418 million to settle claims brought by home sellers back in 2019. A court gave the initial thumbs-up in April, and a final decision is expected this November. In the meantime, get ready for some changes – NAR says new rules kick in on August 17th.
The lawsuit was filed by sellers, and a common question is: besides potentially lower fees, what other upsides are there for sellers?
The truth is, it’s uncertain. But imagine sellers no longer have to cover the buyer’s commission – they might just pay a flat 3% fee for their own agent. Plus, most sellers also become buyers, so they’d still be on the hook for a commission when buying their next place.
“I think what’s going to come out of this decoupling of the commission — that the buyer is going to pay for their agent, the seller’s going to pay for their agent — is that the commissions are going to become more negotiable.”, said Sonia Gilbukh, a real estate professor at City University of New York, Baruch College to Vox.
What about the home buyers? Will some just skip hiring a realtor altogether? Will searching for a house become a whole new game?
Gilbukh filters buyers into two categories: they can be either first-timers or sellers selling a house to buy a new one. Sellers-turned-buyers will likely stick with their agents to find their next place, and they might even negotiate a slightly lower commission since there’s already a relationship.
For first-time buyers, though, the picture’s less clear. They might consider going solo to save money, but the process of finding the right house and dealing with paperwork can be tricky. That said, some might still seek an agent’s help but with more wiggle room to discuss the fees.
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Reece Almond
