Source: Bigger Pockets —
It seems like every media outlet, and perhaps every person on Earth, is debating if the housing market is going to crash soon. While the truth is that no one really knows what’s going to happen, we can examine data and attempt to determine what is most likely to happen.
Personally, I don’t believe a market crash (which I define as a price decline of 10% or more) is the most likely scenario as of now. I think the more likely outcome over the coming years is a significant moderation of the housing market, with a chance that prices flatten or even go modestly negative for a period in late 2022 or 2023.
That’s my interpretation of the data. But at the same time, I also recognize there is more risk in the market now than there has been since 2007. Because that risk exists, I think it’s important to examine what would have to happen to market fundamentals for the market to crash. This way, you all can determine what you believe is likely to happen for yourself.
When it comes to housing prices (or the price of anything in a free market), everything ultimately comes down to good old supply and demand. Of course, other variables like inventory, inflation, and interest rates, all matter – but they only matter insofar as they impact supply and demand.
Right now, there is much more demand than there is supply. This has been the dynamic for the last several years and is the reason prices have been skyrocketing.
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