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Do Unsustainable Home Prices Mean a Market Crash is Underway?

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Economics

Do Unsustainable Home Prices Mean a Market Crash is Underway?


May 3, 2021
House on Jenga
Photo: Romolo Tavani | stock.adobe.com

What goes up must come down, and for the current housing market, more consumers are concerned whether the fall will be a crash and burn. But just as the housing industry defied all odds at the onset of the pandemic, experts say to expect the unexpected. The current housing frenzy has reminded many of the housing bubble in the mid-2000s, but there is no reason to prepare for a similar crash, reports Realtor.com. The reasoning for rising home prices and low inventory is increased demand. What may likely happen, according to Realtor.com, are increased prices for the next several years, but at a might slower pace.

But that doesn’t mean prices will return to their pre-pandemic levels. List prices are expected to continue rising to meet sale prices, but the annual increases won’t be nearly as brutal.

“There’s no way the double-digit price growth can continue long term,” says Realtor.com Chief Economist Danielle Hale.

The only way prices would drop by any significant amount would be if mortgage rates shot up substantially and a lot of homes flooded the market. Record-low rates have allowed buyers to purchase more expensive homes while keeping their monthly payments within their budgets. As rates rise, buyers won’t be able to afford the higher prices. Plus, an increase in inventory would give buyers more choices, meaning there would be less frenzied competition.

“As the pandemic winds down and the work-from-anywhere dynamic pulls back as office buildings reopen and interest rates normalize, that’s going to take the froth out of the market and may also result in corrections in some markets,” says Mark Zandi, chief economist at Moody’s Analytics.

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