Key takeaways
- Home prices are still reaching historic highs, while Fed rate cuts have not brought mortgage rates down as much as many had hoped.
- Even so, economists predict that any market correction will be modest and not on the scale of the Great Recession.
- Experts do not expect a housing market crash, due to low inventory, strict lending standards and other factors.
To the dismay of would-be homebuyers, property prices just keep rising. It seems nothing — not even some of the highest mortgage rates of the past two decades — can stop the continued climb of home prices. Are they destined for a fall? Here’s what the experts say about a potential housing market crash.
Home prices rise ever higher
The U.S. housing market had finally started slowing in late 2022, and home prices seemed poised for a correction. But a strange thing happened on the way to the housing market crash: Home values started rising again. So much for the now-quaint notion that the post-pandemic “housing recession” would reverse some of the outsized price gains in homes.
In another reflection of ongoing increases, the S&P CoreLogic Case-Shiller home price index for October was up 3.6 percent from a year earlier.
The overall housing picture is mixed, though. While home values are at records, the volume of home sales has plunged, and despite some inventory gains, levels are still too low to meet demand. Homeowners who locked in 3 percent mortgage rates several years ago are declining to sell — and who can blame them, with current rates more than double that? — so the supply of homes for sale is staying tight. As a result, any correction will be nothing like the utter collapse of property prices during the Great Recession, when some housing markets experienced a 50 percent cratering of values.
This boom is far likelier to end in a soft landing. “You are seeing more supply coming on market, and houses taking longer to sell,” says Greg McBride, Bankrate’s chief financial analyst. “We’re going to see pretty tepid home price appreciation going forward.”
“Even with the rapid price appreciation over the last few years, the likelihood of a market crash is minimal,” NAR chief economist Lawrence Yun said in a November 2024 statement. “Distressed property sales and the number of people defaulting on mortgage payments are both at historic lows.”
Key housing market statistics
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- According to Bankrate’s weekly national survey of large lenders, the average mortgage interest rate on a 30-year loan was 7.04 percent as of Dec. 31.
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- Existing-home sales in November rose annually by 4.8 percent, the strongest increase since mid-2021, the National Association of Realtors says.
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- The nationwide median sale price in November was $406,100, NAR says. That’s the highest November median NAR has ever recorded.
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- In November, the housing market had a 3.8-month supply of housing inventory, an improvement compared to a year earlier but still below the five to six months needed for a healthy, balanced market — one that favors neither buyers nor sellers.
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- A total of 29,390 U.S. homes had foreclosure filings — default notices, scheduled auctions or bank repossessions — in November 2024, according to the latest numbers from ATTOM Data Solutions. That’s down 9 percent from last year.
The election’s impact on the housing market
In addition to high prices sticking around, the new consensus among economists is that the incoming presidential administration will lead to higher mortgage rates. President-elect Donald Trump has promised tax cuts, and the U.S. Senate, soon to be controlled by Republicans, is likely to go along — as a result, the federal deficit is likely to grow quite significantly.
“To pay interest on the mounting federal debt, the government has to issue more Treasury bonds,” says Lisa Sturtevant, chief economist at Bright MLS.
Trump’s proposals thus far regarding housing affordability could have a mix of good and bad consequences, says Danielle Hale, chief economist of Realtor.com. “The supply-side policies proposed by President-elect Trump are likely to help increase supply, but demand-focused proposals could have unintended negative consequences,” Hale says. “A key feature of the Republican Party platform is the pledge to stop illegal immigration. The goal would be to curtail housing demand and thus the cost of housing. But reducing immigration could severely hurt the labor supply needed for new home building.” About 31 percent of construction-trade laborers are immigrants, according to data from the National Association of Home Builders — that’s a record high.
Supply and demand
The main driver of record home prices is a one-two punch straight from Econ 101 — a lack of housing supply coupled with strong demand. Inventories have been growing but remain frustratingly tight, with NAR’s November data showing a 3.8-month supply. Not even high mortgage rates have slowed price appreciation. For instance, in October 2023, home values held steady even as mortgage rates soared to 8 percent, their highest level in more than 23 years.
Mortgage rates fell all the way to 6.2 percent in 2024, but they’ve moved back up, despite three Fed rate cuts. The average rate for a 30-year fixed mortgage in Bankrate’s weekly survey released Dec. 31 was 7.04 percent.
The fundamental reason for the run-up in price is heightened demand and a lack of supply.— Greg McBride, CFA, chief financial analyst for Bankrate
“You’re not going to see house prices decline,” says Rick Arvielo, head of mortgage firm New American Funding. “There’s just not enough inventory.”
Skylar Olsen, chief economist at Zillow, agrees. “We’re not in that space where things are suddenly going to be more affordable,” she says.
Is the housing market going to crash?
No. Housing economists and analysts agree that any market correction is likely to be modest — no one expects price drops on the scale of the declines experienced during the Great Recession.
The likelihood of a market crash is minimal.— Lawrence Yun, Chief Economist, National Association of Realtors
There are still far more buyers than sellers, and that means a meaningful price decline can’t happen: “There’s just generally not enough supply,” says Mark Fleming, chief economist at title insurer First American Financial Corporation. “There are more people than housing inventory. It’s Econ 101.”
Dave Liniger, the founder of real estate brokerage RE/MAX, says the sharp rise in mortgage rates skewed the market. Many would-be buyers had been waiting for rates to drop — but if rates decline significantly, it could send a rush of new buyers flooding into the market, pushing up home prices. “You’ve got an entire generation of pent-up demand,” Liniger says. “We’re in this fascinating position of tremendous demand and too little inventory. When interest rates do come down, it’ll be another boom-and-bust cycle.”
The numbers don’t represent a crash, but they do show a housing market coming back to earth.
5 reasons there will be no housing market crash
Housing economists agree that even if prices do fall, the decline will not be as severe as the one experienced during the Great Recession. One obvious difference between now and then is that homeowners’ personal balance sheets are much stronger today than they were 15 years ago. The typical homeowner with a mortgage has stellar credit, a ton of home equity and a fixed-rate mortgage locked in at a rate much lower than today’s figures.
The experts point to five compelling reasons that no crash is imminent.
- Inventories are still too low: A balanced market typically has a 5- or 6-month supply of housing inventory. NAR says there was a 3.8-month supply of homes for sale in November (back in early 2022, that figure was a tiny 1.7 months). This ongoing lack of inventory explains why many buyers still have little choice but to bid up prices. And it also indicates that the supply-and-demand equation simply won’t allow a price crash in the near future.
- Builders aren’t building quickly enough to meet demand: Home builders pulled way back after the last crash, and they never fully ramped back up. Now, there’s no way for them to buy land and win regulatory approvals quickly enough to quench demand, so a repeat of the overbuilding of 15 years ago looks unlikely. “The fundamental reason for the run-up in price is heightened demand and a lack of supply,” says McBride. “As builders bring more available homes to market and more homeowners decide to sell, supply and demand can come back into balance. It won’t happen overnight.”
- Demographic trends are creating new buyers: There’s strong demand for homes on many fronts. Many Americans who already owned homes decided during the pandemic that they needed bigger places, especially with the rise of remote working. Millennials are a huge group and in their prime buying years, and Hispanics are a growing demographic also keen on homeownership.
- Lending standards remain strict: Back in 2007, “liar loans,” in which borrowers didn’t need to document their income, were common. Lenders offered mortgages to just about anyone, regardless of credit history. Today, lenders impose much tougher standards — and successful borrowers have excellent credit. The median credit score for new mortgage borrowers in the second quarter of 2024 was an impressive 772, the Federal Reserve Bank of New York says. “If lending standards loosen and we go back to the wild, wild west days of 2004-2006, then that is a whole different animal,” says McBride. “If we start to see prices being bid up by the artificial buying power of loose lending standards, that’s when we worry about a crash.”
- Foreclosure activity is muted: In the years after the housing crash, millions of foreclosures flooded the housing market, depressing prices. That’s not the case now. Most homeowners have a comfortable equity cushion in their homes. Lenders weren’t filing default notices during the height of the pandemic, pushing foreclosures to record lows in 2020. And while there has been an uptick in foreclosures since then, it’s nothing like it was.
All of that adds up to a consensus: Yes, home prices are pushing the bounds of affordability. But no, this boom shouldn’t end in bust.
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