Housing Market Crash Ahead?
Have you been wondering when these crazy house price rises are going to stop? We’ve all heard all the political rhetoric and promises about how the government will fix it. Is the market itself going to fix the problem?
In studying real estate market crash scenarios, signals, and stats, you’ll gain a greater sensitivity to what’s happening and the critical path that will be more instrumental in this upcoming housing market crash. The downturn could coincide with political changes, or a economic crisis, or a stock market crash. It might not.
26 Factors to Pay Attention To
Below are 26 major factors that could play into a crash of home prices in 2023. Of course, with the President’s $5 Trillion spending dream and the Afghanistan and oil price crises heating up, the 2022 Senate election could be the tipping point. If interest rates rise and buyers just give up on the risk and big prices, that could be the innocent initial slide factor — a small tremor that cascades into an avalanche. See the 26 Factors now.
There’s been talk of a housing crash for years now and it’s never happened. The home price chart shows almost no letdown even through the pandemic crisis. If that couldn’t cripple the real estate market, what could?
Some had such strong convictions about a housing collapse and a variety of commentators have pointed out specific technical factors that would cause it. And no one has put together a convincing flow chart of the events to occur. But over the next year some of the unknowns will show themselves and you’ll get a better view. That’s important insight for rental property owners, house flippers, Million dollar home buyers and big mortgage holders alike.
The 2022 senate elections will drag a lot out of the Democrat closet. This is when Biden might make hasty decisions to help his political party, and begin the crash avalanche. There’s still time for factors to grow and become menacing.
Let’s take an immediate look at why we could be headed for the housing market correction:
There were other key criteria (listed below) that might cause a crash, but these 3 have ascended to the top of the heap.
26 Major Crash Factors for the US Housing Market in 2021:
- buyer fatigue builds to a truly precipitous point where any event could start the slide
- Attom Data reports homeowner profit from home sales has dropped down to what it was in 2008
- construction picks up quickly
- oil and energy prices soar too high causing crash fears
- speculators believe its time to fully back out of the housing market
- rising tax hikes begin to hit middle income earners
- home prices ridiculously high and hit a point where they are completely unsustainable
- government takes radical move to “correct the situation” for demanding homebuyers
- China/US conflict sends stock markets crashing (invasion/war maneuvers)
- Russia steps up careless behavior toward the accusatory Biden regime
- economy goes into high speed wobble inviting drastic government intervention for debt issues
- big rise in tax on corporations and billionaires causes wealth to flee the country
- stock market at peak volatility and earnings outlooks dive (investors tuned to earnings now only)
- bankers quickly anticipate trouble and begin tightening mortgage lending with higher rates
- end of moratorium leads many homeowners, landlords, cities, and renters into desperate bankruptcy situation
- the Fed has to raise interest rates too quickly in 2022 to cover debt/capital needs, and given the size of home loans, a 1% increase would create defaults and panic selling
- countries around the world plunge into bankruptcy while their economies stall
- debt in the cities most likely to crash hits a critical point
- Republicans gain new power in 2022 elections and begin shutting down the Democrats
- Republicans block excessive spending (their belief that it’s frivolous and wasteful)
- a return to globalism which would wipe the US dramatic gains of the last 3 years
- “America First” dream fades accompanied by dramatic drop in purchases of China products (trade war) and high cost business environment for US companies
- single-family housing construction permits decline spooking home sellers
- homeowners who have hung on forever to sell, begin to find somewhere else to live and begin selling en masse
- massive student loan and personal debt defaults
- Trump investment tax breaks end with nothing to follow them
- yield curve inverts again thus scaring the financial community
It’s Not the Same as the Financial Crisis/Crash
Economic and lending circumstances today are different. There are no mortgages to zero income zero down payment people, fewer mortgage holders are underwater, homeowners have more savings and stock market portfolios are hefty.
Technical financial factors are often spoken about by economists and brokerage companies and bankers. But in each case, the issue is dissolved when the government prints money and vaporizes the problem. Like someone in Vegas with a credit card, the consequences are waiting for them back home later on.
Few buyers and sellers are inquiring about the prospect of a crash in the housing market, but there are good reasons to be wary. Perhaps the biggest two factors are political and trade issues with China, and the trillions of dollars being artificially pumped into the US economy. Stocks are very overvalued, much like houses today, and any blip in the economy would rock a lot of middle to low income people. If stocks were dumped, it could conceivably roll into the housing market.
Robert Kiyosaki has been calling for crashes for a long time, but he does discuss some relevant insights about the economy and the US government.
Mortgage payments vs income is rising quickly now, and that will leave many mortgagees vulnerable.
Yet one more key point is that as the Covid shutdown eases off, home construction should pick up. Investors and builders will be sticking their heads out in a euphoric period, flooding the market with homes, resulting in front end heavy mortgages. And if there is a downturn in 2023, the builders and buyers might be in trouble.
It looks like the financial sectors is strong, so it’s hard to believe anything could tumble them. Rising interest rates would do it. What would cause the Fed to raise interest rates? What if rates go up globally? What if this tiff with China gets out of hand, as it looks like it’s going to. Some visionaries see war.
The Housing Crash Scenario Will Evolve
Crash discussions constantly evolve as economies progress through their cycles and new issues crop up. So far, economists and housing market experts haven’t come up with a credible specific cause for the next recession and housing market crash.
But we know it’s going to happen sometime, so why can’t they see far enough ahead? Wouldn’t that be worth billions of dollars to investors? Can we rely on Morgan Stanley, Freddie Mac, and Goldman Sachs for the outlook? Did they warn us last time?
The Los Angeles housing market, Denver housing market, Chicago housing market, Boston housing market, San Francisco housing market, Philadelphia housing market, Atlanta Housing Market, Dallas Housing Market, and New York housing market look good. They’re growing and demand outstrips supply. But vertical growth charts are suspicious in themselves when supported by printed money.
Economic Factors Begin to Play In
And is the source of housing demand guaranteed? It’s what happens in 2023 that is of concern, when interest rates rise, Fed buying is long gone, and stimulus slows. How will stock investors feel about it? A lot of sellers have been waiting to sell at the peak and many are now. Listings are rising. Could there be an additional flood of homes dumped when the economy heads downward? Or is a lack of supply guaranteed to prevent a price drop?
With such low availability, home prices will stay solid until the government launches a recession, deliberately or by accident. In the US, the Biden administration is likely not going to induce a recession because it would cost them in upcoming elections. They believe they can defuse these challenges, extreme tensions, and explosive situations that underpin recessions and crashes.
The truth is, that many events can happen that they can’t control. The pandemic was unforeseen yet it was devastating. Perhaps another pandemic could happen in 2022? That might mean that gain of function virus research may be one of the top threats for the next economic collapse.
Instead, the US government will keep rates low, and spend outrageously to ensure results better than Trump achieved. It’s a competitive game. As we progress out of the pandemic, Americans believe the economy should soar, but they know well, that with buyer competition and land development regulations (NIMBYism), home prices will rocket, which they keep doing. With any extreme bubble, the risk is really high.
Perhaps the stock market experts can help us foresee when this next recession would happen? Please do check out stocks to avoid, the best stocks to buy, best tech stocks, and the forecast for the next 6 months.
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What Will the Crash Trigger Event Be?
We have to foresee what the trigger event will be. Could it be government debt and excessive spending leading to damaging inflation that sends markets teetering? Could it simply be foolish government meddling to control threats to all these artificial actions? The famous high speed wobble where things shake and fall apart?
I think a crash scenario can only evolve under conflict with the Republicans, Russia and China. These conflicts would cause the Democrats to make sudden reactions that erode investor confidence. Investor confidence is what drives the stock market.
So, should you sell your house fast this summer? Well, you should hire a Realtor with a solid real estate marketing capability to help you get what the market will bear. 2023 poses a threat in that stimulus money may slow in that year. As things slow, speculators may give up on real estate. Construction may pick up and interest rates could rise thus easing the competition for houses for sale.
Crashes normally require a bubble period which acts as an accelerant and we definitely have that steep price growth. It’s all built on lofty expectations, and really it should be okay as the world economies recover gradually.
Few are pausing before committing to the purchase (FOMO, low mortgage rates, desperation) so there is no thought about a housing market downturn. 2007 had no worries either, then it crashed. Experts feel the situation with banks and over-leveraged borrowers is not with us this time.
Coastal Housing Bubble to Crash 2005. Screenshot courtesy of NRP.org.
The Timeline of Housing Market
This scary looking roller-coaster timeline of market corrections and crashes indicates that when the next does happen, it could be horrific. We have to consider what keeps the cart on the track and what will send it plunging.
Some homebuyers still haven’t recovered from their losses in the 2008 collapse (caused by defaults on consolidated mortgage-backed securities). Their home values plunged 30% and over 9 million lost their homes. Right now, 2.7 million homes are in mortgage forbearance.
Those who wish to refinance will be looking at big hikes, and a good portion of mortgage holders are deeply indebted. And we’re not at the end of rent moratoriums, and we know most renters won’t be able to pay back the rent they owe.
In 2006, there was no talk or worry about an economic or housing launched recession. Yet one problem cascaded into a financial collapse. Today, the US and other nations have trillions in new debt, and can’t compete with China, who came through the China virus period unscathed.
Crash forecasts are revolving around interest rates and government bankruptcy, but the real threat this time is government meddling. The Biden administration thinks it has control of the macroeconomic factors, and that a mountain of debt and regulation squeezes, high energy costs, and rising taxes aren’t a problem.
Commercial real estate is in severe trouble without stimulus because cities won’t be the same after the pandemic. That debt issue isn’t going away, when companies realize workers aren’t coming back to their highly overpriced offices. And many businesses are buried in huge debt going into the economic recovery.
The economy is rocketing (will reach 10% growth) but putting the breaks on just your dragster is ripping down the runway is not good. Some would call this a high speed wobble, where there is no control.
Once the governments get really scared (will New York City go bankrupt?) they’ll restrict mortgage qualifications, raise interest rates, which begins the process. Once everyone sees where the economy’s headed they start bailing out.
This Housing Downturn is a Political Event
It’s the political factors that are key this time because the economy will do well for at least 2 years until stimulus runs out. There’s little support for the economy post stimulus, and China Trade deficit has reached $70 per month. What if the US dollar was suddenly devalued in international finance?
When house prices reach ridiculous heights as they will this summer, the government will face pressure to do something about it. They won’t be able to build houses fast enough even if zoning laws were to allow it. The Canadian governments made moves like this 4 years ago and the housing market there collapsed.
We’ll see if the economy, stock market, and housing market will stand strong and free as the drivers of the boom are removed and buyers flee from all time price highs. The Democrats will need to be master magicians to keep the Jenga pile from tipping over. I’ve listed the full set of housing market crash factors below.
When Do Housing Bubble’s Burst?
Markets always slide right after they reach big bubbly price highs which don’t match what consumers can afford, and as supply increases and buyers and mortgage holders lose their jobs. And buyers keep spending big with bubble cash. An event or series of small uncontrollable financial events can cause housing purchase demand to retreat as people withdraw from big-ticket purchases.
A stock market crash could coincide with the housing event and stock prices are highly inflated, not supported by real earnings.
This could be all about hyperinflation, political mistakes, and baffling complexity. This situation is novel, just like Covid 19, which means fear and misunderstanding will sweep in like a cold winter wind. The fact is, most Americans cannot protect themselves. They are at the full mercy of the economic machine.
The Tale of Two Distinct Housing Markets
The K shaped recovery. The US housing markets are a dichotomy, first with wealthy, cash-rich buyers unaffected by the pandemic shutdown vs all the others faced with rising rents, foreclosure, evictions and homelessness. Consider all the landlords who face imminent foreclosure due to chronic rent defaults.
And falling home prices and foreclosures will not solve homelessness. The situation in San Francisco and New York shows this clearly where people are selling and leaving those states in droves while record numbers move to the streets to live.
There are lots of unemployed, poor people who could rent or buy the vacant apartments in Manhattan, but they can’t afford them. The rich are leaving Manhattan, and many others too (to Philadelphia). The big migration adds to the risk of a housing market collapse in cities, that could bring down all housing markets in the US.
Just as an example of the trending factors, let’s look at affordability. Home prices are bubbling to record highs while unemployment rages and stimulus holds together businesses. Wages are stagnant, high density real estate investors may lose everything, first time buyers are disappearing from the market, homeowners are holding onto their properties unnaturally, and stimulus has to be discontinued). As in the stock market crash predictions post, the event this time might be a slide that can’t be stopped.
We might understand a stock market correction, but with the stock market forecast on a volatile but upward trend, one more Trillion dollar Federal aid package, growing American wealth, $4 to $5 trillion in the money markets, improving economy and good jobs report, and the confidence of a great nation still intact, is it even conceivable we could see a housing market failing?
Actually, the election alone might be the catalyst for a housing and stock market bubble catastrophe. The Democrats have called for drastic changes, based on ideological and their political preferences. Trashing fracking, bailing out democrat states and cities, out of control stimulus spending, with renewed regulation and higher taxes, hasn’t been factored into forecasts. Democrats and many Americans simply refuse to see the danger.
Printing Money Out of Control
The issue of money printing is only one factor. The out of control spending now taking place, was well beyond the imagination of financial experts when they warned about spending. The US is maxxing out its credit cards. What happens now?
What can Collapse a Housing Market?
Rising taxes and mortgage rates. And this is what the Democrats are campaigning on. They’re enhancing the threat via calls for regulation — a strong anti-business agenda which would be enough to send capital investment elsewhere. After all, why would the wealthy agree to be taxed and why would investing in the US make any sense at all?
Although the Biden admin is infusing over $2 Trillion into the economy, an inflationary bubble could lead to stagflation, cost of living crises, stock market, and real estate market crash. Withdrawal of investment money from equity markets, and flight of capital could crash GDP and jobs, leading to collapses of both the housing and stock markets. That means the Dow, S&P, and NASDAQ would crash.
The Corona Virus arrived at an inopportune time. The US had still not regained full footing, with a $500 billion trade deficit each year and a government and people divided. Any change, or any severe turbulence could send the US economy plummeting, and given Joe Biden is leading in the election polls, the threat is very real.
Oil, Tourism, Hospitality, Small Business Decimated
The added weight of a prolonged Covid 19 depression will keep US production subdued for at least another 12 months. The curse the dems have put on the economy will be there for them to clean up in 2021.
Previously I stated that too much demand existed for the market to crash, but the Covid 19 situation doesn’t seem to have an end. Prolonged stimulus will be needed over at least 5 years to keep the markets from collapsing. Simply stopping evictions without supporting landlords and mortgage holders won’t work.
Real estate owners need funds to pay their debts and banks need those payments to avoid catastrophe too. This situation is so severe that the dems have no idea what they in for. They’re so obsessed with discrediting the Donald Trump than they’re eyes aren’t on the road anymore.
Interest in buying homes is up, but much of this might be wishful fantasy. The fact is, many returning workers are on the edge. Any loss of employment through the dark winter could push our Jenga pile over.
However, it seems the hunt for homes is on across America.
Cities such as Austin, Dallas, Houston, Los Angeles, San Diego, Los Angeles, Baton Rouge, Bismarck, Anchorage, Casper, Midland, Lafayette, Bakersfield, are cities most likely to crash. The cities of New York, Chicago, and San Francisco are almost on life support in the ICU, so floating these cities will drain state and federal funding.
Will Home Prices Plunge at Any Time?
People are asking whether home prices will fall? NAR Realtor Survey reports that home prices are already falling and some
We’d have to agree there has been significant housing development, but never quite enough. Trump tried to end the regulation that has been and still does strangle housing construction in California, Florida, Arizona, Illinois and other states.
However if the Dems won the 2020 election, and shipped jobs back to China, vast amounts of investment capital would flee the US. The job loss, defaults, and lack of lending would indeed be part of an epic type housing market crash and stock market crash. This possibility darkens the 6 month and 1 year projections considerably.
Housing Market Crash Timeline
What would a timeline for a housing crash look like? Here’s a guess: a 5% drop in home prices in May, 7% in June if everything holds economically. If the Corona Virus is held at bay, home prices could stay flat for July, and then begin a slight 1% increase in August and September.
If President Trump is elected, and that’s a big worry now given his handling of the Corona Virus emergency. We’re at Easter now and in no way can people go back to work or kids go to crowed classrooms. The drain on the economy is huge and the housing market will see a slide.
45 economists surveyed by NABE expect the economy to shrink by a 26.5% rate in the second quarter, after a 2.4% decline in GDP in the first quarter. In the second half, they expect growth to turn positive, with an increase of 2% in the third quarter and 5.8% in the fourth quarter — from a report from CNBC.
Consumers are expected to resume spending once the pandemic is over, but everyone can see how dependent the economy is on US consumers.
The Democrats are persistent in their media assaults on the President, believing that at some point they can haul him to the ground. But as voters ready to vote, Trump will warn them about capital flight, international supply chain dangers, dangers of foreign dependence, government spending pullbacks, lost jobs, lower wages, and foreclosures.
He could make a case for his bullish approach to running the country, because an ineffectual President would get railroaded for sure. It will be very interesting to how US voters react in the Presidential election.
Threats to the Markets
Number one threat now: The endless continuation of Corona Virus infections. With no cure on the horizon, no one can say when the economy can get rolling again. However, it does appear that China is rolling again. It’s a wild card because medical experts simply don’t know what havoc it will wreak on the economy.
Another open trade deal with China is very risky. It might push jobs back out of the US and devastate business investment here. Investors are confused about where to put their money and are simply holding on to it.
If President Trump accepts a poor trade agreement with the Chinese, it could suppress US stock markets and push us into recession, even if multinational corporations breathe their own sigh of relief. I don’t believe any trade deal would be signed and the two are miles further apart now. America First, means the Chinese are gone.
How Vulnerable is Your City?
Yet, investors and homebuyers should still be concerned about a housing bubble in their cities. Not all states have recovered from the last recession, nor benefited from any Obama era Federal government policies.
In late 2021, could the Fed ratchet up interest rates to pay for all the stimulus? In fact, almost every recession, housing crash, or major catastrophe has been aided by fast rising interest rates. These rate spikes kill off business and put extreme pressures on mortgage holders. Markets collapse quickly then interest rates are quickly lowered.
This transition to a US centered economy over many many years, still puts the country into a vulnerable period of uncertainty and GDP risk. Will companies build factories here or instead hold off and hope for a Trump loss in 2020?
Unfortunately, “soft landings” after rate hike cycles are as rare as unicorns and virtually all modern rate hike cycles have resulted in a recession, financial, or banking crisis. There is no reason to believe that this time will be any different — Forbes report.
Crashes Historically Follow Price Bubbles
“Don’t we learn from history?” Perhaps history can only tell us whether the housing market 2020 is headed on a downward path, but can’t really say when or how it will happen, which cities might crash.
This recent chart from Case Shiller shows the volcano like shape of the last collapse. What’s different about this new rise is the unsteady, less steep climb, upward. Those halting steps could show the fear of investors and homeowners and how panic might be bigger factor this time. Alternatively, it could show housing market resilience.
Subprime mortgage default started it last time, but will something else launch the avalanche for the next one? Will a global recessionary tsunami rocket to US shores?
Zillow polled 100 economic experts about the economy and they believe a recession is coming in 2020. It’s amazing that they saw it coming, but it took a non-financial agent to start the recession.
Housing crash warnings have been sounding for many years both here and in China, which means the pressure for a big eve nthas been building. China is in trouble and so is Canada. With pressure, the human element, the human reaction, built on expectations built up by obsessively negative anti-Trump propaganda, could be sufficient to launch a panic-induced collapse. A panic meter might be the most significant crash signal.
A small statistical event then might only be needed to spark a crash event (like an ember at a California summer campfire).
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Is a Drop in the Market Coming in October?
Will homes prices fall across the US? Many homebuyers wish they would and in October we might see a price correction.
Review the traditional real estate crash factors discussed below from geopolitical events to trade related to rising interest rates, the end of stimulus spending, and excessively high home prices. A trade war with China could be crash factor #1. Will debt, deficits, and tariff barriers be the issues that start bursting housing bubbles? Will it be political opposition by the democrats and meddling within the US?
Certainly the recent comments of the President that “Trade Wars are Good” don’t help settle the panic. Trade tariffs, strong inflation and cost of living rises, along with high mortgage rates and the adjustment to new protected market economies are serious threats.
Even Trump supporters are worried about the transition ahead to 2020.
In this post we try to take an objective look at the unthinkable. At least, it’s unthinkable for some that booming markets in Los Angeles, San Francisco, Sacramento, San Jose, Seattle, Denver, Las Vegas, Dallas, Charlotte, Boston and Miami could possibly collapse.
Others can’t wait for the bubbles to burst so they can finally buy a home. Irrational thinking that can create strange events.
Is the Toronto housing bubble (worst in world now) the future for US cities? If the China housing market crashes, will the reverberations hit the US markets? What an interesting but scary phase of US history this is.
When Will Local Market Bubbles Burst?
If you look at the forecasts for all the bubbled up city markets such as San Francisco, San Jose, Miami, Houston, Seattle, New York and Boston you’ll likely think back to prices before the last crash.
Mathematicians have studied housing bubbles, such as The University of Pennsylvania, and their HOUSING BUBBLE STRUCTURAL MODEL AND HYPOTHESES models couldn’t figure it out. The factors they studied do play a role, but housing bubbles and crashes are likely a cultural phenomenon (outside of major recessions). It comes down to values, attitudes, dreams and panic emotions.
There are some financial market players who make their fortune on crashes and if consumers are miffed about the direction of the market, it would be fertile ground for crash talk.
As long as Americans are employed with rising wages and growing GDP, housing crashes aren’t likely. Yet, a few experts such as Harry Dent are convinced a housing market disaster looms in the next few years.
A growing number of homeowners and buyers are talking housing bubble. With prices stable, economy strong, and demand persistent, why would so many feel the market could crash? Is buyer and seller pessimism enough to launch a sudden collapse?
Neil Kashkari talks extensively about false prophets (Alan Greenspan) and the sources of market bubbles such as $100 barrel oil, and other uncontrollable situations. He says market bubbles and crashes are very complex and the source is often completely unexpected. Could the oil sheiks take the US economy down again? Could China do it? Is the $20 Trillion debt a threat? Or is just the end of a bull run in the stock market?
“However, in those cases where debt is fueling the asset value increase, a correction could trigger financial instability, because banks might take huge losses and potentially fail.” — Neil Kashkari.
Check the stats and 2021 forecasts for the Denver housing market, Chicago housing market, Boston housing market, San Francisco housing market, Philadelphia housing market, and New York housing market.
Top 10 Cities Most Likely to Experience a Housing Crash
From a report in AOL.com here are the top ten US Cities most likely to experience a deep falling:
- Portland, Oregon
- Charleston, SC
- Buffalo, NY
- Fresno, CA
- Los Angeles, CA
- Dallas, TX
- Salt Lake City, UT
- Austin, TX
- San Jose, CA
- San Francisco, CA
Best Cities to Invest in Real Estate
Are you looking for the best cities to invest in real estate or to avoid those metros most likely to crash? The top 80 cities to buy rental properties gives you a peak at the potential of rental property investment.
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