Two Reasons Why the Housing Market Won’t Crash

 You may have heard some recent buzz about the economy and concerns about a potential recession. It's completely understandable for this type of talk to raise worries about the possibility of a housing market crash. However, there's good news – there's no need to panic. The housing market is not set up for a crash right now, and here are two key reasons why.

1. Demand for Homes Is Higher than Supply

One of the main reasons the housing market crashed in 2008 was due to an oversupply of homes. But the situation today is quite different.

A balanced real estate market typically has about six months' supply of homes. When there's more than that, it signals that supply outpaces demand, and prices could fall. However, when there's less than that, it means demand is higher than supply, which tends to keep prices stable or push them higher.

The graph below shows that in the lead-up to the 2008 financial crisis, there were 13 months of housing supply, which was far too much. For comparison, the graph also shows that a balanced market usually has around six months' supply of homes, but today, there's only about 4.2 months of inventory available.

What does this mean? Right now, there are more people who want to buy homes than there are homes available for sale. This imbalance keeps prices steady or on the rise, making it highly unlikely that we will see a housing market crash like in 2008.

Of course, it's important to remember that real estate is local, and inventory levels can vary by area. While some markets may have a more balanced supply, others are still facing a shortage of homes, which keeps demand high. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says, "We simply don’t have enough inventory. Will some markets see a price decline? Yes. [But] with the supply not being there, the repeat of a 30 percent price decline is highly, highly unlikely.”

2. Unemployment Is Still Low

Another key factor that contributed to the 2008 housing crash was high unemployment. When people lose their jobs, they may struggle to make mortgage payments, leading to foreclosures and a drop in home prices. In the 2008 financial crisis, the unemployment rate shot up to 8.3%, which was a big reason for the wave of foreclosures that followed.

But today, the employment situation looks much better. The graph below shows that the unemployment rate in September 2024 is just 4.1%, which is much lower than both the 8.3% during the 2008 crisis and the 75-year average of 5.7%.

With more people working and earning an income, most homeowners are able to make their mortgage payments, which helps prevent foreclosures. Additionally, with so many people employed, there is strong demand for homes, which keeps upward pressure on prices and reduces the risk of a market crash.

Today’s Housing Market Is Stronger than in 2008

It’s easy to feel concerned when you hear talk of a possible recession and economic uncertainty, but it’s important to keep in mind that today’s housing market is in a much better position than it was in 2008. As Rick Sharga, Founder and CEO of CJ Patrick Company, puts it, “Literally everything is different about today’s housing market dynamics than the conditions that led to the housing crisis.”

With demand for homes continuing to outpace supply and unemployment remaining low, the housing market is not heading toward a crash any time soon.

Bottom Line

While it's natural to feel uneasy about economic uncertainty, the housing market is much healthier now than it was in 2008. If you have any questions or want to discuss how these factors might impact our local market, feel free to reach out. You can book a time to chat or text or call me anytime at 918-361-1550.