Housing Market Crash

US Housing Market Crash?

Housing Market Crash Ahead?

With a Covid infection surge and a new Covid 19 variant discovered in Africa, the stock markets did crash on Black Friday. We could see additional market bleeding next week.

And we’re wondering now how solid are US housing markets? Is the new variant going to deflate residential housing markets too? That is not likely given all the economic pluses.  However, 2023 is a more likely target year due the 2022 elections and continuous government debt servicing issues.

But which factors will combine to launch a housing market crash if it should happen?  It’s the sequence of government debt plus the requirement to raise interest rates. That’s why there’s a lot of noise about interest rates out of Washington. They seem to be telling us it is an issue.

In the midst of that onerous debt load, what if a new Covid variant forced new shutdowns globally? The lost jobs, bankruptcies, and fear would cause even the most ardent home buyer to give up trying to buy at these fast rising prices.

And will the China Evergrande crisis leak into the UK, then Europe and possibly create a wave across the Atlantic?

Experts keep talking about the acceleration of prices, but we’ve had lots of that. That won’t cause a crash. The price is bubbly, but the market fundamentals are strong. Something external would have to enter the picture.

There are 33 signals/factors to watch below.

Will Covid Wreck the Real Estate Price Party?

Last year, Covid actually boosted home prices and increased demand.

During the 12 first months of the pandemic home prices rose 15% on average across the US. Of course since then, they’ve been picking up pace with more buyers employed and able to put a bid in. Yet these buyers will face big trouble with mortgage payments in the coming years. Mortgage payments in Los Angeles are up $200 a month year over year.

That’s because of the work from home/office shutdown situation.  Because when residents are uprooted in any manner, they need a new living situation. That uprooting movement (from parents home or shared living spaces) causes new housing demand, which raises prices.

There is still plenty of demand from Millennials, and from those who have left their old jobs for better new jobs. Sometimes they’re in new cities, sometimes just across town.  For 2022, we have lots of demand.

In China, real estate financing related issues are causing concerns that China’s housing market may be headed for serious trouble too. Could this cascade to the US? The resurgence of Covid in Europe and in the US could slow the economic recovery at a time when the Fed and the current US government want to raise interest rates to curb out of control inflation. It is generating deja vu images.

This latest Covid fear might slow market demand and home prices enough to ward off future cataclysmic drops.  But everyone is justifiably concerned right now about a real estate sector downturn. What might be most worrisome is the desperate, frantic, almost irresponsible buying behavior which was evident back before the last crash in 2007.

33 Factors to Pay Attention To

Below are 33 major housing crash factors that could play into falling home prices in 2023.  US banks are solid, interest rates are low, demand is huge, and Americans do have money.  A drop in prices would only provide opportunities for those sitting on the sidelines due to the price.  Nevertheless, mortgage holders are fearful, and buyers are wishful.  See the 34 housing crash factors now.

There’s been talk of a housing correction 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?

Zillow’s estimates are very positive for future home prices.

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.

33 Major Crash Factors for the US Housing Market in 2021:

  1. buyer fatigue builds to a truly precipitous point where any event could start the slide
  2. Attom Data reports homeowner profit from home sales has dropped down to what it was in 2008
  3. rising interest rates
  4. inventory is beginning to be dumped in certain markets
  5. buyer behavior becoming excessive — bidding wars with vertical price rises in some cities
  6. ibuyers such as Zillow begin to get out of the market
  7. stock market downturns
  8. Covid infection surges and new virus variant appears
  9. construction picks up quickly
  10. oil and energy prices soar and inflation rises create bubble-to-crash fears
  11. speculators believe its time to fully back out of the housing market
  12. rising property tax hikes begin to hit middle income earners
  13. home prices ridiculously high and hit a point where they are completely unsustainable
  14. government takes radical move to “correct the situation” for demanding homebuyers
  15. China/US conflict sends stock markets crashing (invasion/war maneuvers)
  16. Russia steps up careless behavior toward the accusatory US regime
  17. economy goes into high speed wobble inviting drastic government intervention for debt issues
  18. big rise in tax on corporations and billionaires causes wealth to flee the country
  19. stock market at peak volatility and earnings outlooks dive (investors tuned to earnings now only)
  20. bankers quickly anticipate trouble and begin tightening mortgage lending with higher rates
  21. end of moratorium leads many homeowners, landlords, cities, and renters into desperate bankruptcy situation
  22. 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
  23. countries around the world plunge into bankruptcy while their economies stall
  24. debt in the cities most likely to crash hits a critical point
  25. Republicans gain new power in 2022 elections and begin shutting down the Democrats
  26. Republicans block excessive spending (their belief that it’s frivolous and wasteful)
  27. a return to globalism which would wipe the US dramatic gains of the last 3 years
  28. “America First” dream fades accompanied by dramatic drop in purchases of China products (trade war) and high cost business environment for US companies
  29. single-family housing construction permits decline spooking home sellers
  30. homeowners who have hung on forever to sell, begin to find somewhere else to live and begin selling en masse
  31. massive student loan and personal debt defaults
  32. Trump investment tax breaks end with nothing to follow them
  33. yield curve inverts again thus scaring the financial community

Nick of Reventure Consulting gives his video review of the housing crash potential.

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.

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 at any time in the next few years, the builders and buyers might be in trouble.

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?

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. The current US 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 the previous administration 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.

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Home Buyers are risking it all buying homes at current prices.
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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? A China housing crash could certainly send shock waves, but more likely the event might be US government related, lets say the debt ceiling combined with cancelled stimulus. That would be a stock market event too.

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 produce shock waves and erode buyer confidence.

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 fell. Experts feel the situation with banks and over-leveraged borrowers is not with us this time.

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.

Mortgage Rates. Screenshot courtesy of Freddie Mac.

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 US 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 Could be 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.

Screenshot courtesy of NAR

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

By printing trillions of hand out money, inflation is the result. Home prices are already rocketing and stock prices are grossly overvalued (54 x price earning ratio for Tesla stock).

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 Dems admin is infusing over $2 Trillion into the economy, an inflationary bubble could lead to stagflation, cost of living crises,  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.

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.

Housing Market Crash Timeline

What would a timeline for a housing crash look like?   Buyers look sometimes to the past to see if there are corolaries to guide them on when housing prices might take big drop.  Stock market investors look to history timeline charts too, but with more conviction that they’re relevant.

We’re definitely in a bubble, but the inflation effect is far from over. Given stimulus money and a recovery, we might not see a drop until major political conflict, change, or interest rates are pushed up too fast. That could happen if the US government can’t pay its debts.

The debt crisis is a major crash factor that few are talking. Experts have said however that the US could just keep spending forever. No one has explained exactly when or how the debt crisis will manifest itself.

Now as we near 2022, amidst high inflation, persistent housing shortages, a stretched out recovery, and Americans having lots of cash to spend, we have to agree with Zillow and Redfin’s general estimates of 10 to 13% price rises.  The bidding wars will continue, but buyers will try to get more creative.

The secondary mortgage market might try to come up with new solutions for borrowers, but without housing stock, there’s not much anyone can do. Home prices will rise.  Construction numbers aren’t good and with the new Covid variant surging, builders are going to be apprehensive about big development projects.  The government would have to guarantee builder’s investments and losses.

Which are the cities most likely for a housing crash? Which cities should you buy property in 2019?

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 downturn, 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

Markets fail when you least expect them to. After reading this post, you’ll see how easy it could happen from California to Texas and New York to Chicago. What will stop the dominoes from falling?

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 event 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).

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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?

See the local metro housing markets: ChicagoSan Antonio, San Francisco, PhiladelphiaSan DiegoLos Angeles, Miami, Houston, Seattle, New York, Sacramento and Boston and for all of Florida.

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:

  1. Portland, Oregon
  2. Charleston, SC
  3. Buffalo, NY
  4. Fresno, CA
  5. Los Angeles, CA
  6. Dallas, TX
  7. Salt Lake City, UT
  8. Austin, TX
  9. San Jose, CA
  10. 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.

Is this the right year to buy a rental income property?   Should you sell your house, and when is the best time to sell it?

More on the markets:  The Housing Market | Home Prices | Will Home Prices Fall? | Are House Prices Dropping in California? | Housing Market 2022 | When Will Home Prices Fall?State of Real Estate

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19 Comments

  1. A real estate agent recently told me, if everyone is sitting on cash waiting to buy house in 2020, what do you think is going to happen? Too many people are waiting in sideline, as soon as we have semi dip, everyone will run to buy house and price will go back up. I am guessing Q1 to be the dip and price to be up by summer when normal people buy anyway

  2. I’m waiting for the federal reserve to roll back interest rates before I buy a home. It’s an outrage that every recession or financial crisis was assisted by rate hike cycles. The federal reserve should be audited heavily if not abolished altogether. How can we allow one single entity, a privately owned entity, that type of control over our economy.

  3. Are you waiting for the house prices going down again in the bay area? Just hold your breath and keep dreaming. It won’t likely happen until 2035.

  4. Hi Gord, I really liked your article. I am happy to see Salt Lake City as one of the top ten cities likely to get experience a crash. My wife and I are saving up cash for our first home. We are both 33 and have one daughter. We can’t believe how ridiculous the asking prices are for the crumbling shed 1950’s homes are here in SLC. The contractors out here only build huge $300k+ homes or high density housing which is nothing we want. The wages here have not kept up with the increase in home prices. Any idea when Utah might see a price crash? We can hardly wait!

  5. Hi Gordon, great article. Like others I have the money to purchase a home now but I’m wondering if I’d be better off waiting till 2020 to do so given the potential volatility and uncertainty ahead in the next year or two. My current market is the Salt Lake City Utah area, would love to hear your thoughts!

  6. I’m looking to buy my first home in northern CA but I’m going back and forth with whether I should hold off. Prices are incredibly high here. I keep thinking prices will decrease (been saying that since 2015) but that’s not happening. Enjoyed reading the article.

  7. Gord, been considering buying in North County San Diego for the last couple years but really fear these out of control prices could come back to bite this first time buyer. Do you think its a good time to buy or wait another year or so?

    1. Hi Jack, I can’t offer advice and I can’t imagine a first time buyer buying in North County. Oceanside home prices are up 11% in the last year, so a lot of buyers/investors are optimistic. I don’t see availability improving much in San Diego County and with the economy so strong, things look good. However, with geo political uncertainty, you need to be able survive a crash anytime in the next 5 years!

  8. Hello Gord, any idea about the DC market and Northern Virginia? The average price of a 2100 sq foot townhouse is now $675K and over inflated. I want to buy because I have a toddler and we need more space but don’t want to be under water if the market crashes.

    1. Hi Skylar, I can’t offer advice unfortunately. Availability in Northern Virginia is very constrained, so the question is whether new homes are being built. People aren’t selling their homes, listings down 4%, and the economy is strong. It’s risky which is why governments are amending financing rules. Did you consider buying a property with a rental income unit?

  9. Me and my husband want to buy a first home (Condo) in San Diego, do you think it is a good idea to wait? interest and home price is high now. we are confused…

  10. I’m in the market to buy a house in San Diego County and turn it into a vacation rental. I own one and it is very successful. I’m wondering if I should wait to buy, and if a recession would lead to a decrease in vacation rental bookings? I’m concerned and do not want to find myself under water. Any updates on this fascinating chain of discussion as of April, 2018?

  11. So Gord, it sounds as if there are quite a few people posting on here that need to run for office, all I hear is a ton of gum flapping, that’s all these lefts are good for, nothing but talk. Trump 2020

  12. Housing prices are overinflated and the “growth” is unsustainable. I am hoping that it all crashes down again because I want to buy a home and I am not interested in buying at the insane prices that are around right now.

    1. Lana, a lot of people are talking housing crash in many markets, but that could take the whole economy down. Even with a crash, it would still be tough for buyers. The right approach to bring prices down is more housing supply. The governments should provide tax breaks and other incentives for housing development and legislation which promotes new housing projects. Good finding a place you can afford.

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