Why isn’t the housing market crashing like we thought it would?
Its no secret that once interest rates spiked above 7% last year it promptly crushed the insane demand that the housing market has seen the prior 24 months. Those that have been spitting out “crash” the entire time seemed to get louder and louder.
So….is it happening?
Short answer: not really.
Yes it is true we have seen dips in some areas, but we have also seen record sales in other areas, and continued appreciation, albeit at a slower rate. So what gives?
Supply and demand. Demand has certainly dropped, but the supply has fallen with it. Heres why:
The overwhelming majority of homeowners have a mortgage rate below 4%. And they aren’t looking to trade that in. This means they are not looking to sell and move up, down, or sideways. Who would want to trade a rate we may never see again to something thats pushing the historical “normal” over the last 40 years? This is limiting the amount of people looking to sell and limiting the amount of new homes hitting the market.
Many people are buying as individuals, rather than waiting and buying as a couple. Those same people are often time opting to keep one, or both of the homes they bought as individuals when they do decide to move in together. Instead of two people owning one home, they own two, or even three. This means that for 1000 homeowners, we aren’t looking at needing only 500 homes. We may need 750, or 1000, or even more.
We simply have not build enough homes in the past 15 years. The crash in 2008 put many builders out of business and some neighborhoods went unfinished for years. Meanwhile the population, especially among the largest generation of homebuyers (Gen X and Millennials) has increased substantially. It is estimated that we are “short” on new homes built by as many as 5 million. Covid and its stranglehold on the supply chain has not helped either when it comes to the ability to build that kind of volume.