You may have recently heard discussions about the economy and the possibility of a recession, sparking concerns about a potential housing market crash. If you’re feeling uneasy, you’re not alone. But here’s the good news—there’s no reason to panic. The current housing market isn’t positioned for a crash.
Real estate journalist Michele Lerner explains:
“A housing market crash occurs when home values drop significantly due to low demand or an oversupply of homes.”
With that in mind, here are two key reasons why this scenario isn’t likely in the near future.
1. Housing Demand Exceeds Supply
A major factor behind the 2008 housing market crash was an oversupply of homes. However, today’s market is quite different.
As a rule of thumb, a balanced market typically has about a six-month supply of homes. When supply exceeds this, it indicates that there’s more inventory than demand, while a lower supply means demand is outpacing available homes. The graph below, based on data from NAR, illustrates the current market conditions in comparison.
The graph compares housing supply across three time periods. The red bar represents the 13-month supply leading up to the 2008 crisis, which was excessive. The gray bar indicates a balanced market with six months of supply for context. The blue bar shows today’s supply at just 4.2 months.
In simple terms, there are currently more buyers than available homes, meaning demand exceeds supply. When this happens, home prices tend to stay stable or even rise, which is the opposite of a market crash.
It’s important to remember that inventory levels vary by location. Some markets may be more balanced, while others could have a slight oversupply, affecting local prices. However, most areas are still facing a shortage of homes.
Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), notes: “We simply don’t have enough inventory. Will some markets see a price decline? Yes. [But] with supply being low, a 30 percent price drop is highly, highly unlikely.”
2. Unemployment Is Still Low
When people lose their jobs, they often struggle to keep up with mortgage payments, leading to potential sales or foreclosures. This was a significant issue during the 2008 financial crisis. However, the current employment situation is far more stable (as shown in the graph below):
This graph compares unemployment rates across three time periods. The red bar represents the 2008 financial crisis, when unemployment was high at 8.3%. The gray bar shows the 75-year average of 5.7%, while the blue bar highlights today’s much lower rate of 4.1%.
Currently, most people are employed, earning income, and keeping up with their mortgage payments. That’s one key reason why we won’t see the wave of foreclosures that occurred in 2008. In fact, with so many people employed, many are in a position to buy a home, which helps maintain upward pressure on home prices.
Today’s Housing Market Is Stronger than in 2008
It’s natural to feel concerned when you hear discussions about a possible recession and economic uncertainty, but rest assured, the housing market is in a far stronger position than it was in 2008. As Rick Sharga, Founder and CEO of CJ Patrick Company, explains:
“Virtually every aspect of today’s housing market dynamics differs from the conditions that caused the housing crisis.”
Demand continues to exceed supply, and unemployment remains low—two critical factors that will help keep the housing market from crashing anytime soon.
Bottom Line
The housing market is in much better shape than it was in 2008, but it’s essential to remember that real estate is highly local.
It’s always wise to stay informed about our specific market. If you have any questions or want to talk about how these factors are affecting our area, don’t hesitate to reach out.
