What are the Experts Saying Now About a Housing Market Crash?

Sometimes it seems the only consistent thing about the real estate market is that it is always changing. And something else that seems to change a lot are the opinions of the ‘experts’. Perhaps this column should have been titled Market Opinion Changes.

Late last year, and well into this year, while many experts were predicting a decline, and in some cases even a ‘crash’ in housing prices, we had predicted that would not be the case. Take a look at how some of those predictions have changed in recent weeks.

Note, for example, the 20-25% positive swing in the forecast made by the American Enterprise Institute. That is the most extreme case, but as you can see, other than Morgan Stanley, all the others listed, who were predicting a decline, are also now predicting increases in home prices.

Why the change? The fact that there is just not enough inventory to meet the high demand can no longer be ignored. Prices are going up because there is a shortage of homes. Keep in mind these figures are based on nationwide data, and in our local market, the demand to supply ratio is even higher. (For information on this, see our latest video below.)

Interestingly, much of the public still believes prices are going to drop. Look at this graph.

More than 1 in 4 are still convinced prices are going to decline. Although the market factors are not there to support than, and the experts have changed their predictions, the media is still having an influence with their headline-making dire predictions.

To be honest, although our team was correct regarding housing prices, there is one aspect of the market that we did get wrong. We had expected mortgage interest rates to have declined back to levels of 5.75 - 6.25% range, and had hoped homes would be more affordable by now. Unfortunately, that has not happened. The effect of this has been to tighten the supply even more. Why would someone sell their home and give up a mortgage at 3.5% to have to take out another loan at 7.5%?

Consider the scenario where someone buys a $500,000 home by putting 20% down ($100,00) and financing the rest ($400,00). For a 30-year fixed rate mortgage, the monthly payment on a 3.5% loan is about $1,800. For the same loan, at 7.5%, the payment jumps to $2,800. Put another way, to change from a 3.5% loan to 7.5% loan, and keep the monthly payment at $1,800, one would have to purchase the new home for $325,000.

Until things settle down a bit, the inventory is likely to remain low, and this in turn, is likely to prevent any decline in housing prices.

For more information, see our latest video where Daniel explains in more detail how the market has changed and what the experts are saying.