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When will the housing market crash again?

Yahoo Personal Finance· Getty Images
Michele Lerner
Updated 9 min read

A housing market crash happens when home values plummet due to a lack of demand for homes or an oversupply. Housing market crashes can happen for multiple reasons, such as a deep recession or depression causing homeowners to lose their jobs, high mortgage rates making homes unaffordable, or a glut of available homes that buyers don’t want or cannot afford to buy.

During the last housing market crash, home prices dropped over 15% in 2008 compared to 2007, according to the S&P/Case Shiller Home Price Indices.

Learn more: Is it a good time to buy a house?

In this article:

There are no signs that the U.S. housing market is about to crash. In fact, the economic outlook and expectations for the real estate market nationally are positive for 2024. A housing crash occurs when demand drops dramatically and home values tumble.

“Unless there is a significant surge in the rate of unemployment, which is currently not in the forecast, the housing market is expected to continue to rebound from 2023 lows,” said Selma Hepp, chief economist of real estate data analytics firm CoreLogic, in an email.

Lawrence Yun, chief economist and senior vice president of research for the National Association of Realtors, agreed that there are no indications that a housing market crash is imminent.

“There is a housing shortage and ongoing job creation,” Yun said in an email. “I would worry if there was an oversupply and if we were in a job-cutting recession, but that’s not the case today.”

Read more: Why are home prices so high?

According to a Washington Post analysis, home prices have risen 54% since 2019, which led some economists to worry about the potential for a housing bubble that might burst. However, even though home prices continue to rise, the pace of increases has slowed. Hepp projected about a 3% increase in home prices in 2025, after a 5% increase in 2024. In April 2022, CoreLogic reported that prices were up 20.1% compared to April 2021.

Zillow’s August home value and home sales forecast calls for home values to increase 2.1% in 2024 and 1.4% by August 2025.

“That’s a healthy sign that the market is becoming more balanced,” said Orphe Divounguy, a senior economist at Zillow, in an email. “Low mortgage costs, record high home equity, rising financial wealth, and a tight labor market means very few people face mortgage delinquency and would find themselves having to walk away from their homes.”

Hepp anticipated that home sales will likely increase because of expected lower mortgage interest rates and a rise in the number of existing homes on the market.

“Currently, economic projections for 2025 are also positive, which points to a positive outlook for the housing market,” Hepp said.

Dig deeper: When will housing prices drop?

Some people think the housing market will crash again because the volume of sales has been sluggish, said Rick Sharga, founder and CEO of CJ Patrick Co., which provides market intelligence and consulting for real estate and mortgage companies. About 4 million existing homes were sold in 2023, the lowest number of home sales in about 25 years. Sharga said sales will likely remain fairly weak through the rest of 2024 and early 2025.

“But that doesn't mean current homeowners will rush to sell their homes at a 20% to 30% discount, which is what a lot of the doom-and-gloom prognosticators are predicting,” Sharga said via email. “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.”

However, demand may pick up even more in the near future. With the Federal Reserve's September 2024 decision to cut its fed funds rate — and more cuts expected through 2025 — mortgage rates are likely to fall, too. As home loans become more affordable, more buyers should enter the market and further lessen the chances of a housing market crash.

The inventory of homes for sale has increased over 30% from a year ago, but it still represents only about a three-month housing supply, which is roughly half of where the market was in 2019, Sharga said.

“In a normal market balanced between buyers and sellers, we would have a six-month supply of homes,” Sharga said. “In the years leading up to the housing crash, there was a massive oversupply of homes for sale: nearly a 13-month supply.”

Read more: Is it a buyer's market or seller's market? How to tell the difference.

The housing crash that started in 2007 and contributed to the global financial crisis continues to weigh heavily on the minds of many economists and consumers. But the factors that led to that crash are not in place today.

“Literally everything is different about today’s housing market dynamics than the conditions that led to the housing crisis,” Sharga said. That includes a limited supply of homes, high levels of home equity, economic strength, and the strict guidelines mortgage borrowers must meet.

“There are little-to-no risky subprime mortgages today,” Yun said. “Therefore, there won’t be an implosion of mortgages. Moreover, most homeowners have locked into low fixed-rate mortgages.”

Lending standards are significantly stricter today, Hepp said. In addition, most households have much more home equity than in 2007, because homeowners have refinanced into low mortgage interest rates and because of the rapid rise in home prices. The average loan-to-value ratio (LTV) is much lower now than during the housing crisis, she said.

Divounguy said that in 2007, homeowners who couldn’t afford their monthly payments typically didn’t have much home equity.

“When their home couldn’t sell, they couldn’t cut their asking price in order to sell their home,” Divounguy said. “As a result, many walked away from their homes.”

In contrast, today, people who sell have plenty of home equity and can afford to cut sale prices if they need to sell.

“The unemployment rate is a low 4%,” Divounguy said. “Home equity is still near record highs in most housing markets. Most homeowners have extremely low monthly payments due to record-low pandemic mortgage rates. As a result, mortgage delinquency and distressed sales remain low.”

Learn more: When will mortgage rates go down? A look at 2024 and 2025.

Whether you’re monitoring your home’s value or hoping to buy a new home, you may want to watch for indications of a future housing market crash. An economic shock such as a major stock market crash or big, prolonged job cuts could signal the start of a housing market crash, Yun said, along with a large increase in the supply of homes.

If unemployment rose rapidly and homeowners couldn’t afford their mortgage payments, they could lose their homes to foreclosure if they couldn’t sell them, Hepp said. A large increase in foreclosures would bring home values down, leading to a potential housing crash.

“Currently, what may be a concern for some markets is the significant increase in non-mortgage related costs, such as property insurance and taxes,” Hepp said. “That may be a bigger concern for households with fixed incomes who may choose to sell their home if they can no longer afford to make their payments. If a significant number of properties were being listed as a result, that could dampen home prices and weaken a housing market. Nevertheless, with housing shortages still outweighing the impact of these additional expenses, a housing crash is not likely, especially a widespread one.”

Sharga suggests that consumers watch their local market conditions, such as whether the population and the job market is growing or declining, along with wages, home sales, and home prices.

“While a national housing crash remains very unlikely, every market is unique, and some are likely to see prices go down even as the national numbers are going up — probably not enough to designate it as a ‘crash,’ but enough to make a difference for some homeowners,” Sharga said.

More than one-third of consumers (35%) believe a housing crash could make it easier for them to afford a house, according to a LendingTree survey.

A crash usually means there is an oversupply of homes on the market and sale prices have plummeted. However, a housing market crash is often accompanied by a recession and job losses, making it harder for someone to qualify to buy a house. Also, homeowners may not want to sell in a down market.

Still, the possibility of less competition for homes and the potential for lower mortgage rates that could accompany a financial crisis tempts some buyers to hope for a real estate market shift.

In a housing market crash, homeowners who don’t need to sell may prefer to wait until home values begin to regain their strength. Being “underwater” on your mortgage, or owing more on your mortgage balance than the value of your home, as many people were during the previous housing market crash, doesn’t immediately impact your finances — unless you plan to borrow from your home equity.

The bigger impact would be on home sellers, who would likely need to drop their prices because buyers would be looking for a bargain.

If you’re worried about when the housing market will crash again, you can take steps to protect your financial wellbeing, such as:

  • Establish an emergency savings fund with at least three to six months of expenses.

  • Reduce debt, particularly high-interest credit card debt.

  • Make a down payment of as much as you can afford so you have immediate equity in your home.

  • Buy a house that you can comfortably afford.

  • Pay extra on your mortgage balance, if possible, to increase your equity.

  • Choose a fixed-rate mortgage so your principal and interest remain the same throughout the years.

Dig deeper: How much house can I afford? Use Yahoo Finance’s home affordability calculator.

The right time to buy a house depends on your individual circumstances, such as your job security and commitment to a neighborhood or city. But late 2024 could be a relatively good time to buy a house. Mortgage rates have dropped in the last couple of months and should continue to do so now that the Fed has cut the federal funds rate — especially if it slashes the rate again in 2025.

There are numerous indicators to watch to see if the housing market will crash again. If demand drops because of job losses or a recession, the supply of homes suddenly increases, or there is a major economic downturn, that could indicate home values will decline.

Mortgage rates are falling, which makes monthly payments and long-term interest costs more affordable. However, home prices are anticipated to continue to rise, so overall affordability will be a challenge.

This article was edited by Laura Grace Tarpley