“We’ve seen an unsustainable increase in home prices in recent years, outpacing salary growth that made it difficult for people to buy a new home. Additionally, the population is growing, but the number of homes being built is not, which may eventually result in a shortage of inventory and drive-up costs. Finally, it is anticipated that interest rates will keep increasing to combat inflation and other economic issues. This might raise borrowing costs and make it even more difficult for people who are just entering the market.”
Read more: US housing market crash coming?
Lippi offered a reminder that it takes more than these challenges to cause a market crash. He explained: As housing is a real asset, the amount of massive money (M2), a gauge of the monetary supply that comprises cash, deposits, and retail money-market mutual fund shares, must fall for the housing market to crash.
“Another factor contributing to the housing markets’ resilience is supply. The overall supply of housing in the United States and home price growth are closely correlated,” Lippi said. “The existing housing supply would take about three to four months to sell, predicting a six-month increase in home prices of about 7%. Furthermore, real estate has evolved into an institutional industry. As housing prices decline, real estate investors will be quick to purchase properties, helping keep the market afloat.”
What happens during a real estate housing market crash
“If the housing market crashes, it can affect homeowners who are still paying for their homes,” Lippi explained. “When property values quickly decline, buyers might end up with underwater mortgages, wherein their loan’s principal is higher than the property’s worth. This could force them to choose between staying in the home until the market stabilizes or selling it at a loss. If they cannot make payments, they may face foreclosure.”
