When is the Real Estate Market Going to Crash?

When is the real estate market going to crash?

This search question has spiked on Google searches by 2,450% over the last week. We hear that sentiment from hesitant buyers and investors frequently, so… when will we hit the top and start to drop?

Over the last month, 42% of the homes sold were selling for more than their list price according to real estate brokerage Redfin. This auction market filled with bidding wars is due to the super low interest rates and the limited inventory for sale right now. The covid-19 pandemic has created Zoom towns where people can work remotely for big companies and live wherever they want, further putting pressure on rural communities like San Luis Obispo County.

San Luis Obispo County

In order to see a decrease in prices, we need to have an increase in inventory or a decrease in demand. The listing inventory, depicted in the infographic below, needs to increase tremendously before it reaches previous levels. The inventory is still down 50% year over year. Homebuilders are currently working on new home developments, yet even they cannot keep up with the levels of demand.

Future demand can be indicated by the number of mortgage applications being made. According to Comerica, mortgage applications for purchases fell by 4.6% for the week of April 2, the second consecutive weekly decline after a four-week winning streak from late February through mid-March. If this trend continues, then perhaps the demand would soften. However, on a four-week moving average basis purchase applications were up 28.9% from a year ago. This shows that demand is still extremely high.

So, will the market be crashing soon? Most likely not. The supply is too low and demand too high. The lender requirements are much more strict than they were in the run up to 2008. Also, if sellers do get behind on their mortgages they will likely sell or refinance rather than lose their home in foreclosure. This means even with the large number of people in forbearance across the country there is unlikely to be a wave of foreclosures. Investors are also purchasing up properties, which creates a backdrop for major price decreases. If you were waiting to buy until the market crashed... you could be waiting a long time.

Source: CNBC Article