The housing market has been on a hot streak for several years now, with rising home prices and high demand from buyers.
Experts and homeowners alike have expressed some concern that the market may be headed for a crash in 2023.
Although there are always risks associated with the market, such as rising interest rates and a potential economic slowdown, there are also several factors that suggest the market is well-positioned to remain strong.
For example, interest rates, while rising, are still historically low, making home ownership more affordable for many people.
According to Freddie Mac, the main industry source for mortgage rates, historical mortgage rates have averaged 8% since 1971; however, the fluctuation between historical highs and lows since then has been dramatic.
Demographic shift driving demand
Additionally, let’s look at the demographic shift that is driving demand for housing.
As millennials and Gen Zers reach their prime home-buying years, many of these younger buyers are seeking larger homes with more outdoor space as a result of the pandemic.
This has led to increased demand for single-family homes that we just don’t have enough of.
There are more than 72 million millennials in the U.S., making them the most populous generation in the nation, according to Rocket Homes. However, just 9% of them own homes as of 2020, and 71% of them can afford less than half of the homes on the market.
Market with limited supply
Unfortunately, they are entering a market with limited supply due to years of under building.
As we discussed in last week’s article, while there has been some new construction in recent years, it has not been enough to keep pace with demand.
Builders have struggled due to factors such as labor shortages, rising material costs, and zoning restrictions.
Because of the tight housing market and low inventory, prices have increased as a result.
While price increases can be unsettling, this also indicates that demand for housing is strong and that the market is healthy.
Housing market has weathered shocks
Another area to consider, the housing market has already weathered several economic shocks in recent years, including the COVID-19 pandemic and the 2008 financial crisis.
While these events certainly had an impact on the market, it ultimately proved to be resilient and recovered relatively quickly. This resilience suggests that the market may be able to withstand future shocks as well.
Lastly, there are several policy measures in place that could help prevent a crash.
California implemented new policies like, The California Homeowner Bill of Rights which provided protection from foreclosure and eviction during the pandemic and offered mortgage forbearance and providing financial assistance to struggling homeowners.
The Federal Housing Administration also provided COVID-19 loss mitigation options for borrowers unable to make their mortgage payments due to the pandemic.
In late January, the U.S. Department of Housing and Urban Development Mortgagee Letter outlined the expansion of COVID-19 Recovery Loss Mitigation Options.
The letter stated that recovery options may be offered through, but no later than Oct. 30, 2024 and completed no later than Feb. 27, 2025. Policies like these helped to prevent a wave of foreclosures and evictions that could have destabilized the housing market.
Market poised for growth
In conclusion, while there are certainly risks to the housing market, the overall outlook suggests that a crash in 2023 is unlikely and the current indicators suggest that the housing market is poised for growth in the coming years.
With strong demand, limited supply, favorable policies, and a positive economic outlook, the housing market is well-positioned to remain healthy in the coming years. As always, it is important for homeowners and buyers to stay informed and make informed decisions about their investments.
If you would like to discuss a strategy for buying or selling your home that will help you get the most money possible, please don’t hesitate to call, text, or email me today! (619) 568-0568. I would be happy to help you navigate this shifting market and ensure a successful sale or purchase.
