06 Jul US Housing Market Crash 2018 2019 and Beyond
Housing Market Crash 2019?
Crash or Boom in 2019? The growing strength of the new US economy, improving employment and wages, demographics and good personal debt situation of most Americans keeps pushing stock and housing prices to new records.
Yet, a high number of investors and homebuyers are still concerned about a housing bubble and housing market crash in 2018 or 2019. Back in 2007, house prices were hitting records while the economy was booming and then the crash came so quick, so suddenly catching everyone off guard. That’s when it happens, when you least expect it.
“Don’t we learn from history?” Perhaps history can only tell us that the housing market is going to crash but can’t really say when or how it will happen. You’ll read about the likely factors below.
This recent chart from Case Shiller shows the volcano like 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.
Housing crash warnings have been sounding for many years both here and in China, which means the pressure for a big crash has 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).
There are numerous housing crash factors discussed below from geopolitical events to trade related to excessively high home prices. A trade war could be crash factor #1. Will debt, deficits, and tariff barriers be the issues that start bursting housing bubbles? Will it be political opposition 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 in 2019.
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 Fransisco, 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.
Going back to 2007, did anyone suspect what was about to happen? The collective ignorance over housing and economic dynamics was appalling. The threats were there but no one knew what they were.
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, Los Angeles, Miami, Houston, Seattle, New York and Boston you’ll likely think back to prices before the last crash.
Are you spooked about the real estate market in 2019 or 2020? Leave a comment below and please do share this post on Linkedin.
Take a look at the 12 Top Crash Factors listed below to help youdecide whether buying a house or rental apartment is still a wise decision.
Check the state of the US housing market right now and 2018 forecast.
The recent stock market correction gives us pause for thought about how volatility can factor into a housing crash. However, the housing market is healthy with home construction rising and it will be a long time before demand is satisfied.
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. Even Anthony Robbins is speaking up about it in a video below.
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?
Have a good look at the current housing market along with the residential markets in cities such as Boston, Houston, Seattle, Sacramento, and Los Angeles. If you or your family are considering buying a home or condo, it’s wise to understand the macroecomic as well as human factors (Trump’s saboteur competition).
There’s two camps on the 2019 crash issue. First those who see the unbelievable period of economic growth in the US and believe it has to end and who see the end of Free Trade as a forboding sign; and secondly, those who see only positive signals and the solid political footing of the Trump administration in its resolution to bring good paying jobs and industry back to the US.
Even if the US is headed for greater things, it doesn’t preclude the possibility of a major market correction in housing. But for housing to crash, a series of factors would have to align.
A key factor is a recession. Right now President Trump is heralding an era of trade protectonism. While this policy can work very well for the US, it sends big economic shocks to formerly dependent economies such as China, Indonesia, Mexico, and even Europe.
These countries are full of boastful bravado about their ability to stand on their own two feet without the US, the reality is the abruptness of the protectism wave might be too much. If these economies collapse, including a China housing market collapse would a Tsunamai be sent toward US shores that would send into recession. Right now, this could be the number one threat.
The world’s economies have become tightly woven and a fast release might be too much to handle resulting ina global recession and accompanying housing market crashes.
12 Housing Crash Factors
- excessively high home prices via a price bubble
- increasing underwater mortgages
- fast rising interest mortgage rates
- slowing economy and sudden rises in unemployment
- wage growth not keeping up with home prices
- tax changes and geo-political shifts
- trade deal disturbance
- a stock market bubble and volatility
- high level of consumer debt affecting debt servicing
- cost of living rises
- risky low rate mortgages for new home buyers
- high oil and gas and energy prices
We might add a very strong US dollar to the mix too. A strong dollar makes US exports too expensive thus threatening jobs here and making imports more attractive.
Even though the housing markets have substantial strength, the world is a very connected place. If China and other economies were to collapse, it might be enough to send the stock markets and real estate markets plummeting. Dent says New York, Los Angeles, San Francisco, Chicago and Boston are the riskiest markets.
What did say Mellon Bank’s expert say back in 2014, about the source of recessions?
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.
If you’ve purchased a pricey home or condo, or you’re considering buying a property in the overheated Los Angeles housing market, San Francisco housing market or those in New York, Seattle, San Jose, San Diego, Portland, Austin, Houston, Charlotte, Miami, Dallas, or other hot real estate markets, you’re likely feeling some nerves of late.
The turbulence of the election, rising interest rates against overheated housing markets does give some plausibility to a US housing crash in 2018 or 2019. Proponents of an upcoming crash point to too many Americans living lavish lifestyles, still buying expensive foreign luxury cars on a $40,000 salary, while sitting on over-leveraged monster mortgages that could be subject to quickly rising mortgage rates.
In San Francisco, the risk of a bubble burst in 2018/2019 is highest and that city is ranked number 1 as highest for a crash. Prices in the San Francisco Bay area housing market are extremely high and if the tech sector does have an extended downtick with rising mortgage rates, perhaps the forecasted slide could start.
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 crash:
- 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
Interesting list, dominated by California and Texas, which have been doing well economically. With oil and gas prices predicted to keep rising, I wonder if that will calm the situation in Dallas and Houston? A good number of people are inquiring about a Florida housing crash as well, yet Miami isn’t the whole Florida market.
Tyler Durden of zerohedge.com discusses in a post how homeowners are burdened in debt and unable to refinance their mortgages. He points to his key statistic that mortgage owners will not be refinancing their mortgages in 2017 which points in the direction of bubble bursts and crashes.
This chart below paints a very scary picture, that it’s worse than 2006. Not only does it correlate 2017 with 2006, it shows that we’re up high on a dangerous cliff in some cities. However, most cities aren’t in this situation, so if a collapse in California, New York and Texas were to occur, other cities might survive okay.
There are other mitigating factors too such as the strengths in the economy, foreign investors buying property, and rising optimism and confidence since Trump won the election. At this point, we’re wondering if Obama and Clinton are relieved not to have to face the mess they created? Trump seems to be up to the task and yet, he has purportedly said he would enjoy watching the crash, even if it takes down some of his real estate empire. Is this just a comment on high home prices?
The cost and availability of credit provide fuel for a bubble to inflate, inviting even less experienced, or less credit-worthy players into the game, all of whom believe they will sell their recently purchased assets at ever-increasing prices — from a CNBC post.
That credit is being freed up in 2018/2019, but will it fast enough to create huge instability if mortgage rates don’t rise precipitously? Here’s Seattlebubble’s reasoning on why we may not be in a housing bubble/crash situation:
- still lots of all-cash buyers, with few zero-down buyers
- no crazy neg-am, fog-a-mirror, interest-only home loans like last time
- interest rates remaining low
- affordability index not as bad
- buyers and lenders more cautious
Home prices aren’t as high as they were in 2006/2007 and mortgage rates are much lower:
No one will dispute that there are big risks but for 2017, everything looks to be under control.
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Disclaimer: this post/information is meant as a discussion of housing and investing issues, ideas and trends, not as advice for investment. Please use good judgement and professional advice if you’re investing in any market whether stocks or real estate.