When Will The RE Market Crash?

[Moises R Cosme]

The history of markets tells us that we will always have a crash.  

This graph shows total consumer debt in the US since 2003

Housing crashes come from over indebtedness, this graph shows that US consumers have more debt today than they did during the housing crisis in 2008

Total US consumer debt in 2008 $13T

Total US consumer debt in 2019 $13.9T

Total debt per US consumer according to US Census Bureau data: $41.77, this exceeds the record established in 2008 of $41.68 (this is total consumer debt divided by the entire population)

So, are we in for a crash?? UNLIKELY

There are two key financial indicators that tell us that US consumers are in better shape today than they were in 2008 (even taking the pandemic into account):

1. Median household income 2019: $68,703
2. Median household income 2008: $57,010

Consumers make more money; the median household income is up 20% from 2008, while total debt is only up 6.9%.

The second indicator is the consumer debt delinquency rate

2005: 4%                                   2016: 4%

2006: 4.25%                              2017: 4.125%

2007: 6%                                   2018: 4.25%

2008: 8%                                   2019: 4.125%

Delinquency rates for 2020 are not yet available, but there is no evidence that delinquencies have spiked anywhere close to 2008 levels. 

Anecdotally it seems unlikely that there will be a real estate market crash at any point in the next 3 to 5 years. The federal reserve has dropped interest rates to 3% or less, which is being reflected in current mortgage rates (a recent Buyer of ours put less than 5% down and obtained a 30 year mortgage with a 2.37 interest rate). The federal reserve is now committed to a low interest rate environment for the foreseeable future, IF they were to raise interest rates back to 4% ALL homebuyers and many consumers that refinanced their properties would be under water as purchasing power would decrease and there would be a subsequent impact on sale prices (historically there is an inverse relationship between interest rates and property prices; drop interest rates, property prices go up and the reverse applies).

What do you think?  Many pundits disagree with me and believe that market is long overdue for a correction.  Reply and let me know what you think.