Many potential home buyers today are waiting for a “dip in the market” or a “market crash or correction” before purchasing their next or first home. Could this be you? Maybe you believe, like many do, that home prices are going to go down sooner than later and that right now is a good time to “wait it out and see what happens”. This may in fact be the best option for some potential buyers, but is this the best idea for most homebuyers who are wanting to buy a home, especially considering how little inventory there still is? So too, with the high amount of consumer demand that still exists, particularly with millennials, is the best choice to sit on the sidelines for, months or even years, in hopes that home prices will go back down the 2019 levels? What is the best move to make? Perhaps more importantly, what factors are the most important to consider when dealing with this question?
Let’s go over some of the major points.
Evidence
Is there strong evidence that the real estate market will crash like it did in 2008? The short answer is, no. Unemployment is currently low and even though interest rates have gone up since 2020 they are still lower than most times in US history. More significantly, the bad loans have not been given out (like they were back then). Around 2010, new government regulations were put into place in order to make sure borrowers who were applying for home loans were well suited to pay for those loans on a monthly basis. This is in stark contrast to 2005-2006 (for example) when NINJA loans (No Income, No Job or Assets) were being handed out like candy. Lending standards are much tighter now then they were prior to 2008.
But what about rising interest rates and the potential for a recession in 2023 or beyond? Won’t there be lots of foreclosures? In comparison to 2008, again the answer is no. The number of foreclosures is currently very low but more importantly, homeowners have equity! If the economy goes into a recession (or even a depression) they can sell their properties and pay off their existing mortgages. This was not the case in 2008 where borrowers were overleveraged and where inventory spiked to levels far above demand.
Another key factor to keep in mind is the fact that home builders cannot meet the demand that exists. Current building regulations, supply chain issues, and an increase of demand from a new pool of buyers who are just entering the real estate market (such as millennials) are keeping inventory from spiking.
Now, is it possible that there exists some outlier (some unseen thing – or set of things) that comes out of the woodwork and causes the real estate market to go down significantly? Sure, yes. Almost nothing is impossible. However, for most things in life (even important decisions) most financially savvy folks do not count on such things to occur. The better option (taught my most successful investors or financial minds) is to follow the evidence instead of emotion.
Under this light, there does not look to be any strong evidence of a real estate crash.
Final Thoughts
Given all of this information I believe that, yes, waiting for a market crash is a mistake. Many successful real estate investors, as well as seasoned economists who understand these topics far better than I do, would say that attempting to time the market is a mistake. “It’s about time-in the market, not timing the market that is key” they advise. Indeed, investing for the long term (instead of say, continuing to rent) has been shown time and again to be a far better option for financial security.
We don’t have a bubble, we just have unhealthy home price growth.
-Logan Mohtashami (Lead analyst at Housingwire)
