When is the next housing market crash?

While 2019 was overall a stable year for the housing market, that hasn't stopped speculation about when the next housing market crash will happen. Surprisingly low interest rates have been used to incentivize first-time homebuyers to enter the market and current homeowners to explore refinancing their existing loans, but has this been enough to keep the positive momentum going in 2020?

With nearly 15 years in the financial and residential lending areas, I have seen all the ups and downs of the housing market. While it's easy to hypothesize what changes may occur in 2020, I have gathered information from leading economists paired with my own insights and market trends for the most comprehensive answer to when the next housing market crash may be.

Why the speculation?

A quick internet search for "when will the next housing market crash be" brings up hundreds of results, most with the year 2020 in the title. It seems like 2019 was too good to be true; mortgage rates hovered steadily around 4% APR and surprised most economic experts. Because the market was so stable during 2019, experts and individuals alike seem to be holding their breath for when it will all come crashing down.

Of course, there are some solid reasons to believe that the market could experience a shake up in 2020. Many of the trends that have experts concerned are reminiscent of past market mishaps, but do not necessarily spell an upset in the near future:

Rising home prices: According to The Balance, one sign experts look for when predicting market crashes is home prices. They describe an increase in housing prices to be an asset bubble - when homes become over-inflated this bubble can pop and result in a market crash.

In Nov. 2019, Zillow estimated that the median home value in the U.S. was $243, 225, already a 3.8% increase from the previous year. The housing experts also predict home prices will continue to rise another 2.2% within the next year. Rising home prices are making it more difficult for first-time homebuyers to enter the market.

Lack of affordable housing: At the same time, there is not enough affordable housing available for buyers who want to purchase a starter home or smaller dwelling. Even rentals are becoming less available as contractors buy up land to turn into traditional housing. When home prices continue to rise and affordable housing dwindles, potential homebuyers are more inclined to stay in their current living situation.

Higher interest rates: Even though interest rates remained low in 2019, people are already speculating about when they could rise. Higher interest rates have caused a market collapse in the past, reports The Balance, because they make loans more expensive. This could slow the building of homes and loan applications, cutting back on both the supply and demand for new housing. Again, while interest rates have remained low in 2019, it's the speculation about when they could rise that has people discussing the next housing crash.

Changing demographics are the reason for the market shift

Cabot Wealth Network puts these aforementioned trends in perspective by explaining that the potential change in the housing market is actually due to shifting demographics. While baby boomers are reaching retirement age, they're downsizing into their final homes, but millenials are not purchasing the properties they're leaving vacant. In real estate, it's up to the younger generations to continue purchasing homes to keep the market strong, but that is no longer happening.

Millennials, and younger generations in general, are grappling with student debt even before the thought of purchasing a home has entered their minds. Increasing home prices on top of their existing debt also means these first-time homebuyers are sometimes unable to commit to purchasing a home because they can't afford it.

Finally, as these individuals come of age, less are having large families. This means the newly built homes for a family of four or more aren't practical for modern homebuyers. To save money, they're more inclined to live at home or rent smaller dwellings that fit their needs. Since younger generations are holding off on buying homes, it's definitely slowed the market, but this does not necessarily signal a crash.

The reality for the housing market in 2020

Most experts believe that while the housing market may slow in 2020, it will likely not crash in the near future. Forbes explains that the strong state of the U.S. economy and low interest rates will keep the demand high for new mortgages, while shortgages in new, affordable housing will contribute to price growth and slow the market.

After interviewing expert economists, Forbes came to the conclusion that while houses might be slightly overvalued, it's nowhere near the levels in 2005 that were predictors of the 2008 recession. Speculation is the only reason individuals have become worried about the market in 2020, but when you look at its current state and future predictions, housing should remain stable over the next year.

HousingWire holds a similar prediction: Even if other factors in the economy lead to a recession, the housing slowdown won't be a contributing factor. Through their own research, they found that 51% of real estate panelists expect home buying to decrease in 2020 due to factors such as rising prices, but 17% still think home buying will increase.

The fact of the matter is, it's still a favorable time to purchase or sell your home. By buying now, you can lock in low interest rates for years to come. It's also a great opportunity to refinance your current loan to receive better terms.

I founded InterContinental Capital Group with the belief that home financing can and should be a simple and straightforward process. We subscribe to the philosophy that the best way to service our clients is to educate them on their options. With Consumer Connect, I want to hear all about your concerns, expectations and experiences with buying a home so we can provide you with the best loan options and customer service in the industry. Reach out today to get connected with Dustin DiMisa and the expert team of lenders at ICG.