Is the housing market going to crash? What experts say about the possibility in 2024
Swapna Venugopal Ramaswamy, USA TODAY
Updated 4 min read
There is little debate whether the Federal Reserve’s inflation-fighting tactic was effective in cooling down the hot pandemic housing market.
For the first time in 131 months, home prices fell year-over-year in February 2023, ending the longest-ever price growth streak, and prices continued to decline on an annual basis through June. Since July, home prices have resumed rising year-over-year but have been dropping on a monthly basis. In November, the median existing home price dipped to $387,600, which is 4% higher than the previous November's $372,700, according to the National Association of Realtors (NAR).
Meanwhile, elevated mortgage rates − which have doubled since early last year − have constrained homebuyers’ purchasing power. Instability in the banking sector, headlines about layoffs, and recession risks were also causing prospective homebuyers to hold back for most of 2023.
So, does this mean a housing crash could be on the horizon? Housing experts don’t believe that to be the case.
“Despite uncertainty in the economy and the housing market right now, there is little to suggest that the housing market is poised for a crash,” says Bright MLS Chief Economist Lisa Sturtevant. “For a plunge in home prices—like we saw in 2008, for example—we would need demand to pull back dramatically and/or supply to increase significantly.”
First, it looks like the housing market is starting to slowly turn around. Existing home sales rose in November for the first time in six months, And over the past two months, mortgage rates have fallen by about a percentage point to a still-high 6.7%.
Meanwhile, the Fed has signaled that it's probably done with rate hikes and is forecasting three rate cuts in 2024, a blueprint that, if carried through, would notably lower mortgage rates.
Even while home prices were dropping a bit year-over-year, a lack of inventory and a strong jobs market helped keep values relatively high.
"The housing market cannot compare to last year’s intense spring home buying market,” says Jessica Lautz, NAR deputy chief economist and vice president of research. “However, there is strong demand for housing."
Properties typically remained on the market for 25 days in November, up from 23 days in October and 24 days in November 2022. Sixty-two percent of homes sold in November were on the market for less than a month, according to NAR.
There has been limited supply as about 80% of mortgage holders are locked in to sub-5% mortgage interest rates, which discourages current homeowners from selling their home and buying another at today’s elevated interest rates.
Total housing inventory at the end of November was 1.13 million units, down 1.7% from October but up down 0.9% from a year ago (1.12 million). Unsold inventory sits at a 3.5-month supply at the current sales pace, up from 3.6 months in October but up from 3.3 months in November 2022 2022.
“Supply is still very, very low which would keep home prices from collapsing even if we saw a downturn in demand,” says Sturtevant.
If there were significant job losses, we could see an increase in the number of people unable to make their mortgage payments and who would therefore have to list their homes for sale, says Sturtevant.
New homes sales and builder confidence
Builder confidence in the market for newly built single-family homes in December rose three points to 37, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
This marks the fourth straight month that builder confidence has registered a below-50 reading, which indicates that builders view market conditions as “fair” or “poor.”
The median sales price of new single-family homes in November rose to $434,700 from $414,900 in October. The median home price in November of 2022 was $462,300.
"New home prices have adjusted lower due to higher interest rates, despite a post-covid... increase for construction costs," says National Association of Home Builders Chief Economist Robert Dietz.
The good news: Housing starts surged by 14.8% in November, climbing for the third straight month to a six-month high of 1.56 million at a seasonally adjusted annual rate.
Is a housing market crash likely?
Experts agree that even if there's a price correction, it will not be as dire as the 2007–09 housing crisis in terms of magnitude.
In the years before 2008, mortgage lenders made subprime loans to borrowers without verified income or adequate down payments while pushing risky loan products. This time, tough loan underwriting standards are the norm, experts say.
Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.
