Will the housing bubble finally pop? When will it crash?

[Ian Hogan]

Everyone wants to know for their own reasons — whether it's to exit the market, to prepare and safeguard investments, or to finally be able to invest in the market since the housing prices are so high right now.

Upfront disclaimer: No one has a crystal ball to predict the next crash of the market. That being said, there are key indicators that allow investors to speculate on what will happen next in the market.

The last market crash around 2007 can be visualized below. The figure shows only multi-family properties in Massachusetts. There was a large listing volume at the time, and list prices dropped significantly by over 30% across the state. In comparison, today there is historically low listing volume with historically high listing prices and sale prices.

Federal Funds Rate

As opposed to the market popping, my opinion is that the market will cool. This is dependent on the Federal Reserve slowly raising rates. What does this actually mean? The Federal Funds Rate is the rate at which banks can borrow and lend money to other banks. A more in-depth explanation can be found on Investopedia. While this rate is not the rate that us as consumers can borrow at, this rate affects how much the banks are willing to charge the consumer for interest. Ultimately, this rate can affect and change the mortgage rate indirectly. Seen below, the Federal Funds Rate is virtually zero. This has led to very low interest rates over the last few years, causing a lot of “free money” to enter the market. As this rate increases, mortgage rates will begin to increase. Ultimately, less ‘house’ can be afforded with the same monthly mortgage payment, lowering what makes sense financially to purchase houses for.

Summary:

While I expect the market to cool down due to the rise in mortgage rates, this will be directly opposed by the low volume and high demand market we currently face. On top of that, rents have continued to increase over the past several years due to high demand for rentals . These additional factors will delay the cool-down until they cannot be maintained any longer, eventually finding market equilibrium and plateauing.

[Jay Hinrichs]

Quote from @Alexander Szikla:

Three thoughts on why the residential sector may cool, but not dive off a cliff: 

1. Although interest rates are rising, the "real interest" rate is negative due to high inflation. This may subside. It may not. 

2. There is a fundamental shortage of housing - basic supply and demand

3. Lock In effect - folks who have low interest rates are locked in and won't be transacting which will aggravate supply issues further

Number 3 is very relevant. so we may see a big boon in folks remodeling and exiting home as opposed to selling and trading up. But you still have people moving around the country I just sold one of my new builds to someone Monday .. New job in town hubby already there working living in efficiency hotel. Town of 25k in Portland metro area.. in the entire town there are ONLY 31 listings on MLS of detached SFR's . of which 20 are new construction and of those 15 have not broke ground. So that leaves a total of 11 homes on the market TOTAL and a handful of new builds that can be moved into in the next 60 days.. this sale they approached us before we came to market so it was off market.. this does skew MLS data as we were in contract Monday my wife list it Monday and has it sale pending on Monday so 1 DOM . And full price no concessions but no bidding war either our price is our price .. Even though we have sold everything we built as presales last 12 months we have not had bidding wars we had multiple people on a home and i just raised the price and who ever offered first got it. So as we sit in this little burg with phase 2 ( 30 homes) we have now 5 pre sales that were off market of which 3 are all cash and the buyers have also paid us up front 50 to 100k for upgrades NON refundable. So its very regional, part of our success in our market is the reverse of what happened 5 to 7 years ago where folks were selling in suburbia to move closer into urban Portland. Enter Floyd riots city with no back bone and let the homeless destroy the downtown core.. BLM and Antifa rioting 200 straight nights and now half my buyers have sold their urban pdx and moved back out to the safe and sound burgs..

So as we can see its hard to make any proclamation about the market is crashing when you have micro markets that can be doing the exact opposite..