Housing crisis

The housing crisis means that house prices will not go down. Sorry, Millennials.

  • The housing markets of the mid-2000s and early 2020s share some similarities.
  • However, the end of the two warm cycles will be very different in nature.
  • This is bad news for potential millennial buyers hoping to see house prices fall.

History repeats itself often, but when it comes to today’s real estate market, don’t hold your breath.

If you were a homebuyer in the mid-2000s, today’s warm market might sound eerily familiar. Like many of your fellow Americans, you may be wondering when this real estate cycle will end and bring prices down to earth.

It won’t be so simple this time around.

That’s because the US housing market is in uncharted waters and throwing homebuyers into a loop.

A typical real estate cycle unfolds in four phases: expansion, hyper supply,


recession

and recovery. This is the pattern that gave rise to the housing bubble of the mid-2000s, a time when a combination of cheap debt, predatory mortgage lending and complex financial engineering led to a foreclosure crisis as well as a credit crunch among investors – and by 2008, a global recession.

During the Great Recession, home prices in the United States – which had soared during the housing bubble of 2006 and 2007 – hit their lowest level in 17 years. This created a chance for many Americans to afford a home if they managed to escape the crash financially unscathed.

As some of the factors that contributed to the 2008 housing crisis reappear, many Americans, especially millennials — the biggest cohort of homebuyers of the 2020s who saw their parents navigate the rocky real estate landscape of the 2000s – expect a similar result. However, today’s housing market is a very different beast. Although the United States is preparing for a possible recession in 2023, house prices will not collapse any time soon.

As Axios’ Nathan Bomey recently wrote in a newsletter, “As an older millennial, the financial crisis has taught me to think that rising house prices must come down. But this has the ingredients of a softer landing.”

Housing shortage continues to drive up house prices

The country’s real estate market is in disarray. Home prices and rents have hit new highs as potential buyers jostle for the limited supply of homes in the United States. All the while, affordability has plummeted for millions of households as the reality of realizing the American Dream grows increasingly grim.

Instead of a hard crash this time around, the housing market is bracing for a soft landing – and that means house prices won’t fall like they did in 2008.

In 2022, housing


volatility

is not attributed to lax lending standards, but rather an imbalance between housing inventory and demand that has driven affordability to new lows.

“I don’t think house prices will fall anytime soon,” Holden Lewis, real estate and mortgage analyst at NerdWallet, told Insider. “Demand still outstrips the supply of homes available for sale, the economy is creating jobs and lending standards are tight. These factors are helping to keep home prices from falling.”

According to Freddie Mac – a publicly traded company formed in 1970 to expand the secondary market for US mortgages – the US real estate market currently needs more than 3 million homes to meet demand from potential buyers. According to Realtor.com, the shortage of housing supply has helped push the national median listing price to a record high of $425,000.

While buyer demand has cooled somewhat due to mortgage rate hikes spurred by the Federal Reserve’s attempts to rein in inflation, home prices continue to climb in neighborhoods across the country.

“Normally, higher mortgage rates lead to lower house prices, Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors, told Insider. “But I don’t expect house prices to fall in 2022. We’ll see slower house price appreciation, but not a price decline.”

According to NAR, despite mortgage rates rising above 5%, house prices still rose 15% in April. Over the past year, the organization says rapid house price increases and rising mortgage rates have caused housing affordability to plummet by 29%, the steepest annual decline on record. “Although higher mortgage rates are hurting affordability, home prices continue to rise,” Evangelou said.

The NAR expects house prices to rise 5% by the end of the year. For many millennial buyers, this could make their dreams of home ownership a reality.

Are you a first-time home buyer or finding creative ways to navigate the housing market right now? Contact this reporter at alloyd@insider.com.