Housing Market Crash 2020?
A new Wall Street Journal report puts the odds of a recession at their highest level in 7 years, at 25%. Previously, economists forecasted 2020 as the year of the collapse. Perhaps we should revisit housing market demand and re-examine whether this could be when high home prices crash?
The point is to recognize threats so you can time the sale or purchase of your home/condo. This may be the best time to sell your home.
Some suggested this dark outlook is due to:
- higher interest rates
- trade disputes with China
- stock market sell-off in December
- tax breaks disappeared
- stimulus spending ended
- falling GDP and US goods exports
- yield curve inversion
Yet these depressive factors above seem to be in the rear view mirror. Recent earnings reports and record NASDAQ prices are excellent, but is the US housing market a different beast?
What NBC, CNN and the media don’t want to mention is the 2020 election, and that a disruption to the Trump led US economy really is a factor now. If voters are willing to vote Democrat in 2020, the economy isn’t their first priority, nor worries of a recession, which is a threat to it and the housing market in 2020.
The year “2020 is a real inflection point,” says Mark Zandi, chief economist at Moody’s Analytics.
US consumers are less optimistic and given they and the housing market will have to support GDP, jobs, and housing demand, there is a real threat of a housing crash. Oil prices are rising and there’s no expectation IRAN will change its ways so sanctions will be lifted on their oil output. Bloomberg just reported auto sales dropped in March. The talk of trade wars with the Euro are a concern. Trade friction is an issue.
Which are the cities most likely to crash?
Since housing downturns usually precede economic recessions, and today’s housing market isn’t supported, you don’t have to be a genius to see the writing on the wall.
The big factor is whether President Trump can keep the US economy rolling when trade deficits hit record numbers and his ability to stimulate to grow might be limited. With the population so emotional, they might not be thinking at all about 2021 when the curtain falls.
Number one threat now: A 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.
What could possibly cause a housing crash and will cause it to grow in 2019? Consider these crash factors below and how they could affect the stock markets. Are the housing markets taken for granted such that big mistakes could result in a plunge?
13 Housing Market Crash Factors
- excessively high home prices via a price bubble
- increasing underwater mortgages
- fast rising interest mortgage rates
- rapid reduction of government spending
- slowing economy and sudden rises in unemployment
- wage growth not keeping up with home prices
- tax changes and geopolitical shifts
- trade wars
- 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
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. There really are cities at risk of crashing.
The key factors are discussed below. Know them before you buy a home.
Will Rising Interest Rates Lead a Downturn?
Right now, experts believe that unwarranted rising interest rates along with global trade wars could be enough to send US housing markets crashing.
President Trump is angry about the Fed’s desire to raise rates to cool the economy, which may not actually be that red hot until next spring.
Some experts believe the US Fed launches recessions with unreasonable rate increases. In fact, every recession 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 crash quickly then interest rates are quickly lowered.
The transition to a US centered economy puts the country into a vulnerable period of uncertainty and GDP risk. Companies are hoarding products from China right now while the tariff is 10%, but on January 1st 2019, it will be 25% and that should stop imports completely, especially if the US dollar should weaken. 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.
But what happens when Malinvestments in Europe and Asia become visible and crashes begin to happen there?
“Don’t we learn from history?” Perhaps history can only tell us whether the housing market 2019 is headed for a correction, but can’t really say when or how it will happen, which cities might crash. You’ll read about the likely factors below.
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.
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).
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What Are the Key Housing Crash Factors to Watch?
There are numerous housing 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 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.
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 you decide 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, Chicago, 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 protectoinism. 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 that the abruptness of this protectionism wave might be too much. If these economies collapse, including a China housing market collapse a Tsunami could 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 in a global recession and accompanying housing market crashes.
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.
In San Francisco, the risk of a bubble burst in 2020 is highest and that city is ranked number 1 as highest for a crash. Prices in the San Francisco San Jose Santa Clara Oakland 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
Recent Home Sales Recovered from Winter Drought
According to data from NAR and Trading Economics, new and resale home sales recovered from the Dec/Jan drought. Currently, the housing market looks good. Buyers are holding off so price appreciation should stay moderate throughout 2019.
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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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.