The big question for those wanting to buy a house or condo this year is whether prices will fall? No one wants to buy now when they could wait and perhaps save themselves hundreds of thousands of dollars.
But the 2008 housing crash has already been forgotten even though its residual effects of it haven’t completely disappeared. The financial market and regulatory mistakes made then were fixed, but will it prevent this housing bubble from bursting?
Home Prices Rocketing: Up 15% Year over Year
Home prices continued their relentless rise across the US in the first quarter of 2022. Properties have jumped 15% year over year to $357,300 on average. And the spring selling season hasn’t even begun.
Home prices have almost tripled in Los Angeles since 2000, and in Austin TX, closing prices have rocketed 41% year over year to $655,862.
And while it seems a housing market crash would be unlikely in a period of sustained price increases, it is what is happening in the economy that could lead to a collapse.
Real estate market crashes have typically occurred after an intense period of home price inflation, the so-called housing market bubble. Plenty of economists has stated their belief that the US is in such a bubble condition. For 14 years, the prices have risen, relentlessly driven by economic expansion, low-interest rates, and strong Fed stimulus.
There are a lot of housing market crash signals to see, and each housing market crash throughout history exhibited many before they fell. There are 4 major crash factors that forewarn of a real estate market crash:
Those four crash signals are flashing red in 2022.
If demand is so intense from people who want or need a home, are employed with rising wages, and have down payments available, then how could the market possibly crash?
That would take a marked drop in demand or the ability to pay for houses or condos. What factors might support a housing market collapse?
7 Things that Support a Housing Market Crash
It’s not necessarily any one factor but rather, the culmination of many simultaneously.
Cities Most Likely to Suffer a Crash
US cities likely to see home prices plummet will most likely be in high tax states such as New York, Massachusetts, California, Hawaii, New Jersey, Minnesota, where home prices are also very high. Many of these states have been living on Fed stimulus money transferred to them to keep them afloat. States such as New York, California and New Jersey have massive debt problems and could conceivably go into bankruptcy. Businesses would pull out and leave for low tax states such as Texas, Tennessee, and Florida.
The number one state that is likely to see a housing market collapse in California. With home prices at the highest level in the nation, with businesses and people fleeing due to high taxes, excessive regulations, and massive unserviceable debt, the Golden State is poised for a major crash event.
Across the United States, as long as Fed funds continue to flow, stagflation can be fought off. But with a change in the US house and senate in 2023, the likelihood is a pullback in the stimulus. Trade wars and sanctions could further hamper global trade and suppress US exports.
A guess is that 2023 will bring a recession and a sudden loss of interest in sky-high-priced homes.
Dig deeper into the forecast for the US housing market and price trends in many major cities.
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