Will Real Estate Crash in 2024?
Concerns often linger about the potential for a real estate market crash, reminiscent of the significant downturn experienced in 2007/2008. Yet, 2024 brings a different narrative, supported by various elements that indicate a more robust and resilient housing landscape. This is not to imply that the real estate landscape is always looking up and that it doesn't have its hardships or risks. However, it is not as extreme as the mainstream media would like you to believe. Let's dive deeper into these factors, backed by credible sources:
The factors
Interest Rates and Affordability
Since October 2023, interest rates have taken a substantial dip, plummeting by 1.3 percentage points. Forecasts by reputable financial analysts, including market analysis firms like Bloomberg and Reuters, suggest a continued downward trend in interest rates or a quick cut in rates towards the middle of the year.
Sources: Bloomberg, Reuters
This reduction in interest rates significantly impacts affordability, making homes more financially accessible to potential buyers. Research from the National Association of Realtors (NAR) and Freddie Mac indicates that for every point decrease in interest rates, home affordability increases for a broader segment of the population.
Sources: National Association of Realtors, Freddie Mac
Other sources do make it clear, however, that even with interest rates below 7% and bordering 6%, the increase in market activity is still expected to be modest compared to the activity seen during the pandemic (late 2019 into summer of 2022).
Sources: Windermere Real Estate
Increased Supply and Homeowner Activity
Contrary to the subdued market conditions witnessed this time last year, 2024 has seen a notable shift. In local areas we are seeing a surge in the number of homes scheduled to enter the market. Homeowners, empowered by this favorable market scenario, are proactively listing their properties and home buyers are engaging in the market with offers on existing inventory.
Stricter Lending Criteria Mitigating Risk
One of the concerns in today's market is the tightening of lending restrictions, making mortgage qualification more challenging. However, this has a silver lining. Reports from the Consumer Financial Protection Bureau (CFPB) and analysis by housing economists indicate that the individuals qualifying for mortgages in this environment are more financially stable and less likely to default.
Sources: Consumer Financial Protection Bureau, Housing Economist Analysis
Equity and Foreclosure Risk Management
Even in cases where mortgage default occurs, data from the Mortgage Bankers Association (MBA) and housing market analysts showcases that most homeowners have accrued enough equity in their properties since purchase. This equity provides a safety net, enabling them to opt for a sale and settle debts before properties reach foreclosure auctions.
Sources: Mortgage Bankers Association
The outcome
Resilience Against External Influences
While the real estate market is intricately tied to broader economic and political landscapes, recent indicators suggest a notable resilience against potential destabilizing influences. Despite concerns about various economic factors like inflation, supply chain disruptions, and political shifts, these elements have yet to exert a significant detrimental impact on the housing market.
Sources: Windermere Economics
Since 2007/2008, the real estate market has demonstrated an ability to adapt to changing economic and political conditions. While short-term fluctuations may occur, the fundamentals supporting the current market appear robust enough to withstand these fluctuations without cascading into a crash similar to previous downturns.
Resources
- Windermere Economics: Search areas served by Windermere Real Estate for the latest update on local housing markets and their forecasted activity.
- Federal Reserve Reports: Visit the Federal Reserve's official website for economic reports and interest rate trends.
- Bloomberg and Reuters: Explore their respective financial analysis sections for insights into interest rate forecasts and market trends.
- National Association of Realtors (NAR): Access their research section for information on home affordability and market trends.
- Freddie Mac: Check their research and reports section for data on interest rates and housing affordability.
- Zillow and Redfin: Visit these real estate platforms for data and reports on housing market trends, including listings and sales activity.
- Consumer Financial Protection Bureau (CFPB): Find information on mortgage lending criteria and consumer protection measures on their official website.
- Mortgage Bankers Association (MBA): Access their research and reports section for data on mortgage default rates and homeowner equity.
