Will The Housing Market Crash?

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Will The Housing Market Crash?

Jun 21, 2023 | News | 0 comments

Rising prices. Economic downturn. Elevated loan rates. Expensive fuel. Turbulence in the job market, like The Great Resignation phenomenon. Difficulties in the supply chain. Declining stock market. And the challenges persistently arise.

Is the American economy on the brink of collapse? Will there be a housing market crash? Will this generation be unable to afford homes and become lifelong renters? Absolutely not, on all accounts.

Apologies for interrupting your anxiety-inducing gathering, but there is no reason to believe that a catastrophic event is imminent. While there are certainly concerning factors at play and certain circumstances are unpleasant, the situation is not as dire as it may seem.

When fear takes hold, your brain is inundated with fight or flight chemicals, impeding your ability to think critically. Engaging in higher-level reasoning and analysis is only possible when the perceived threat is diminished. Decisions made while in a state of fear or anger rarely yield positive outcomes. In the current news cycle, which thrives on drama, you’ll likely experience multiple instances of anger and fear throughout the day if you allow yourself to be consumed by it.

Inflation is real, and the decision to pause factory production to control the pandemic had an impact. However, the current administration worsened the situation by reducing domestic oil production, leading to supply shortages and higher gas prices. Rising labor costs and reduced workforce also contributed to increased expenses. As people emerged from quarantine, they flooded the housing market, but the costs of materials and labor rose, causing housing prices to soar. With decreased production and high demand, there continues to be a shortage of housing options. Since 2019, house prices have surged by 29% and are projected to rise by an additional 8% in 2022.

Amidst this tumultuous rollercoaster ride, why do we, at Ramsey, maintain our belief that house prices won’t experience a crash? The answer is straightforward: the Law of Supply and Demand. The sole factor that influences house prices is the interplay between supply and demand. When demand surpasses supply, house prices do not plummet.

Nevertheless, many individuals raise the question, “But what about 2008?”

During that time, the demand for housing experienced a significant decline, falling far below the existing supply. Consequently, house prices did indeed decrease. It marked a noteworthy event as it was the first substantial and prolonged drop in house prices in nearly a century. However, it is important to note that prices eventually rebounded within a few years.