When Will the Housing Market Crash?

Any period of economic uncertainty can make a major financial decision, like buying a house, more stressful. Even times of economic confidence can seem like the perfect time for the bottom to fall out, and you don’t want your home to be collateral damage.

While the housing market on a national scale has seen prices decline since mid-2022 amid high interest rates, experts are noting that a sudden and abrupt housing market crash is unlikely, based on current market conditions. Housing demand, housing supply, mortgage interest rates and unemployment all play a role in how the real estate market fares, and currently they indicate a period of decline in some markets and growth in others, but a decline in transactions overall – and certainly not significant decline as seen in the housing market crash of 2008-2009.

Here’s what you should know about the housing market now and the indicators that can show if we’re headed for a crash:

Are We in a Housing Bubble?

In economics, a bubble is defined as a period of rapid market value growth of an asset – in this case, homes.

Considering the fast pace of the housing market that has lasted roughly the length of the COVID-19 pandemic, rapid market value growth accurately describes the housing market up until about midway through 2022. Home price growth was in the double digits year over year every month from August 2020 thru mid-July 2022, based on home sale price data from Redfin.

Signs of a growing housing bubble may be waning now, however. Month-over-month prices have declined since summer 2022. And while home prices are still up year-over-year as of December, the increase was just 1.8% higher than December 2021, according to Redfin.

“We’re looking at home prices right now and think they’re a bit overextended, still, of what they should be, given mortgage interest rates,” says Mike Reynolds, vice president of investment strategy at Glenmede, a wealth management firm headquartered in Philadelphia.

While mortgage rates are technically independent of the federal funds target rate set by the Federal Reserve, they often increase or decrease as a result of the Fed’s actions. The federal funds target rate has been raised repeatedly in the last year in a marked effort to curb inflation. The average 30-year, fixed-rate mortgage interest rate reached over 7% in October and November 2022, but as of Jan. 26 the average rate has dropped to 6.13%, according to Freddie Mac.