Is the housing market about to crash?

Given the economic downshift seen this year, there is a question on virtually everyone’s mind: Is the housing market about to crash or in danger of collapsing soon? While nobody has a crystal ball to glimpse into the future, one pundit shared his predictions with Mortgage Professional America.

“The US housing market is now slowing down after a record-breaking run that saw home values rocket to new highs and mortgage rates plummet to record lows,” Kris Lippi, owner and CEO of the popular real estate website iSoldMyHouse.com, told MPA. “And with inflation rates climbing up and down this year, it’s not surprising that stakeholders are wondering whether the housing market is about to crash or collapse soon.”

The good news: Lippi, who’s also a licensed real estate broker and an official Forbes Real Estate Council member, doesn’t see an outright crash in the making: “The housing market may be headed for difficulties, but a full market crash is unlikely,” Lippi said.

“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.”

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.”