Two Key Reasons the Housing Market Isn't Headed for a Crash

There’s been a lot of talk lately about the economy, and with it, concerns about a potential recession. If you’ve been feeling uneasy, especially about the possibility of a housing market crash, you’re not alone. But here’s the good news: the housing market is not heading toward a crash.

Real estate expert Michele Lerner explains:

“A housing market crash happens when home values plummet due to a lack of demand for homes or an oversupply.”

With this in mind, here are two reasons why a housing market crash isn’t on the horizon

1. Demand for Homes Exceeds Supply

One of the major reasons behind the 2008 housing crash was an oversupply of homes. Today’s market is the opposite.

In a balanced market, there’s typically a six-month supply of homes. If supply outpaces demand, that number is higher; if demand is greater than supply, it’s lower. Take a look at the graph below using data from the National Association of Realtors (NAR) to see where things stand today:

This graph compares housing supply across three time periods. The red bar shows there were 13 months of supply before the 2008 crisis—far too much. The gray bar illustrates a balanced market with six months of supply. The blue bar? That’s where we are now, with just 4.2 months of supply.

What does this mean? More people want to buy homes than there are homes available. In situations like this, home prices tend to stay steady or rise—exactly the opposite of what happens during a crash.

Of course, inventory levels vary by location. Some markets may be closer to balanced, while others may even have a slight oversupply. But most areas are still experiencing a shortage of homes.

As Lawrence Yun, Chief Economist at NAR, notes:

“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 Rates Are Low

High unemployment can lead to trouble in the housing market, as more people struggle to make mortgage payments, increasing the risk of foreclosure. That was a big part of what fueled the 2008 crisis. Today, however, the employment picture is much brighter. See the graph below:

This graph highlights unemployment rates during three key periods. The red bar shows the rate during the 2008 financial crisis, when it hit 8.3%. The gray bar represents the 75-year average of 5.7%. And today’s unemployment rate? It’s at a much lower 4.1%, as shown in the blue bar.

With more people employed, mortgage payments are being made on time, and we’re not seeing the wave of foreclosures that occurred in 2008. Plus, with steady employment, more people are in a position to buy homes, which keeps demand—and prices—up.

The Housing Market Today Is Stronger Than in 2008

It’s easy to get anxious when you hear talks of recession or economic uncertainty. But rest assured, the housing market is much healthier now than it was in 2008. Rick Sharga, Founder and CEO of CJ Patrick Company, puts it simply:

“Literally everything is different about today’s housing market dynamics than the conditions that led to the housing crisis.”

Demand is still higher than supply, and unemployment remains low. These are two key factors that will help prevent a market crash anytime soon.

Bottom Line

The housing market today is in much better shape than it was during the 2008 crash. However, remember that real estate is always local. 

If you want to know what’s happening in your specific market or discuss how these factors might affect your area, don’t hesitate to reach out to your local real estate team, Rucker & Associates team, for guidance.