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This spring, about 45% of sellers said they believed the housing market was headed for a crash in 2022. Google Trends data also showed a significant spike in searches for the term “housing bubble.” Doomsday fears are mounting as record-high home prices make more consumers and real estate professionals nervous that the market may be overheated.
However, James McGrath co-founder of the New York-based real estate broker at Yoreevo says “we almost surely are not” in a housing bubble. Buyers still have concerns about how a slow economy potentially could impact the Real Estate market. Most leading housing economists agree that the market isn’t in bubble territory. While home prices have never been higher, the market today is considerably different than in 2008 during the last housing crash.
In 2008 there were almost 4 million homes on the market, whereas today we only have 1.1 million. The crash was due to irresponsible lending and high inventory. Leading up to 2008 new construction accounted for more than 2 million homes coming. For one, instead of a housing surplus, like there was in 2008, the nation is facing a severe inventory shortage. Homebuilders put more than 2 million housing units a year into the market in the years leading up to the 2008 bubble. New construction was being overbuilt. In the last several years new construction has been at historic lows leading to low inventory levels due to the years of underproduction. “
The last two years have led to surging home prices which leads a Buyer to think that we are set for a downturn in the market. Nationwide the median price of a home is now $407k. While the market may make a slight correction economists say a 5% correction in the housing market may occur, but that is after double-digit gains over the last two years and these corrections are going to be dependent upon the area. Lawrence Yun, chief economist for the National Association of REALTORS® has stated “even with localized price correction it will not cause harm to the housing market or the financial banking system.” This is a time for Buyers to view the market as a second chance to get into the market when there are less offers. This means no longer having to waive all contingencies just to get into a home.
One thing to remember is that the market is adjusting to a normal market which is not the same as a crash. The balance sheets of the banking industry are still quite strong and the housing market remains strong. As double-digit price appreciation begins to slow the National Association of Realtor economists still predict a 5% to 6% gain this year. Maybe not the 13% to 20% that has been seen, but still a decent gain that will be added to a Buyers net worth.
Melissa Dittmann Tracey, NAR Contributing Editor (July 2022)
