You may have noticed increased talk, or at least some chatter, over the past few weeks of a potential housing market crash, but is the housing market setting itself up for a crash or are we seeing the beginning of a shift?

First off, what does a shift even mean and what’s the difference between a shift and a crash?

Watch the following video, or continue reading below, as I explain the difference and share how you are likely to be impacted if planning on buying or selling a home.

What Does the Crystal Ball Say

The million-dollar question.

I am still yet to find anyone that has been able to predict the future perfectly, but promise to keep looking😜

If you recall, when the pandemic hit there were multiple reports of the housing market crashing worse than in 2008. We were told to expect a tsunami of foreclosures as unemployment rose, buyer demand would disappear, and home prices would plummet.

How did those predictions work out?

Instead, the housing market soared. The work from home trend took off and removed many of the barriers regarding how far from the office people could live. Silicon Valley engineers flocked to Hawaii and Idaho fueled by the newfound freedom and record-low mortgage rates.

Without a doubt, the real estate market got hotter than expected, you could even say overheated, so any evidence of cooling is going to feel like the market is coming to a screeching halt (which it isn’t).

I share this information not to convince you one way or the other, but to make sure you have all the facts, and latest information, to make the best decision for you and your family.

Housing Market Shift or a Crash

This isn’t 2008…….

You’ve probably heard that before, but it’s true. Yes, home prices have been rising rapidly. Yes, mortgage rates have risen faster than expected. Yes, pending home sales are down. Yes, homes aren’t as affordable as they were just a couple of years ago.

Those facts, on their own, don’t mean a crash is inevitable and Just because there are signs of change, doesn’t automatically mean we are going to have a crash.

The real estate market ebbs and flows, back and forth. I think everyone will agree we can’t continue with the conditions we have seen over the past couple of years and last year in particular. It isn’t sustainable.

But unlike the rampant speculation we saw in the early 2000s, this run has been based on the fact we’ve had very high demand against unprecedented low supply.

Pending home sales are down year-over-year because there’s nothing to buy, not because demand has fallen or the market is collapsing. As of May 2nd, there were just under 300,000 homes for sale in the US. In a “normal” market, we would expect there to be between 800,000 and 900,000 homes for sale at this time of year.

If you were hoping foreclosures would come to market and ease supply I’m sorry to say you are going to have to keep on waiting. The foreclosure level last month was 40% lower than the foreclosure rate prior to the pandemic and new mortgage defaults have reached an all-time low. There just isn’t going to be the influx of foreclosures many thought there would be as a result of the pandemic.

Additionally, homeowners are currently sitting on substantial amounts of equity. When the market crashed in 2008, homeowners had little equity available to absorb market changes as they’d been using their homes like personal ATM machines. Equity was pulled out to buy jewelry, cars, boats, vacations, etc. That hasn’t happened this time.

What Does a Shift Mean

As mortgage rates rise, demand will be impacted, but not as much as you might think. The vast majority of homes are bought and sold because of a change in life events, not mortgage rates.

The supply problem we have been experiencing will likely take a few years to work itself out. Sellers of resale homes will be less inclined to sell their home that has a 3% mortgage rate to purchase a more expensive home at a 5.5% mortgage rate. As such, new supply is more likely to come from new construction, and that won’t happen overnight.

Home Buyers - stay patient! There is light at the end of the tunnel. How quickly market conditions change will depend on where you live, but you will start to see homes stay on the market a little longer, won’t have bidding wars and multiple offers on every house, and new home builders won’t have waitlists 100’s of people deep.

Home Sellers - don’t expect multiple offers and bidding wars within days of your home being listed for sale. Days on market will increase and you won’t be able to price your home ahead of the market and expect it to sell. Buyers will be increasingly focused on value and the best overall homes will sell first. We are already starting to see the number of homes reducing price before going under contract increase and I expect that will continue going forward.

Bottom Line

Based on the latest information available, the market is showing signs of cooling, but the fundamentals remain strong and there is no hint of a crash in our future. Right now it’s looking more like a release of steam. Leading market experts are still predicting home prices to increase over the next 12 months, but at a slower pace than we have seen over the past couple of years.

But as mentioned above, nobody predicted the housing market to take off as it did following the pandemic.

The best advice I can give, stay tuned!

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