When Will The Housing Market Crash? Market Report for June, 2021

When Will The Housing Market Crash? | June 2021 Housing Market Update | Cincinnati Real Estate

The question is rattling around and fears seem to be growing. When will the housing market crash, or will it? Concerns from 2007 and 2008 are still echoing in our minds and there are some similar indicators today to what was seen then. The main issues revolve around the inventory shortage as well as the quickly rising home prices.

Across Southwest Ohio and Northern Kentucky, in the counties of Boone, Kenton, Campbell, Hamilton, Butler, Warren and Clermont, the average sale price rose 15% to $303,604. Prior to 2007, it was safe to anticipate home prices rising 3 or 4% per year. The time a home is on the market before it goes under contract fell to 11 days on average, down from 21 days in January. Also, in contrast to January, 2021, the average sale price home sellers got in comparison to what they were asking went from 98.98% to 101.45%, meaning even considering distressed properties, sellers were getting more for their homes than they were asking.

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By themselves, those numbers would be cause for concern. Quickly climbing prices, short days on market and unusually high demand by buyers are definitely attention demanding. But that is not all there is to the story.
In the 2000’s there were a lot of very questionable loans being made. One loan allowed borrowers to pick their payment. They were actually able to make partial payments only toward the interest of the loan which quickly developed a situation where borrowers owed more than what they home was worth. Other loans were made to very high-risk borrowers for more than the price of the home they were purchasing. It was a card house waiting for someone to turn on a fan.

In today’s market those elements don’t exist. Should home owners be in risk of losing their home when the mortgage moratorium ends it will be in a market where home values have gone up enough that it is unlikely they would owe more than what the home will sell for. It is likely many home owners who find themselves stuck in that situation will receive money from the sale of the home.

What we are likely to see in the housing market is a slowing of the current pace, not a crash. There are two reasons for that.

First, values have risen so quickly that some home buyers are finding they are being priced out of the market. Before COVID, first time buyers could find good homes around $120,000 to $160,00. Those same home now are over $200,000. The home affordability index has been severely impacted. Per the NAR’s Housing Affordability Index, https://cdn.nar.realtor/sites/default/files/documents/2019-q3-home-affordability-index-ranking-and-payroll-job-growth-01-15-2020.pdf , Greater Cincinnati in contrast to other metropolitan areas, lost 16 positions to other cities, falling from the 28th most affordable in 2014 to the 44th in Q3 of 2019. New statistics will be coming out soon expecting that gap to grow.

Second, the Federal Reserve will be hard pressed not raising the interest rate to control inflation. Ycharts.com, https://ycharts.com/, shows inflation rates for June, 2021 to be 5.39% and appears to be on a continued upward trend that started at the beginning of 2021. Once interest rates begin to rise, not only will there have been buyers lost due to the higher prices, buyers will also be lost due to the higher interest rates meaning they only qualify for lower priced mortgages. Lower numbers of buyers mean lower demand which should slow the down the market.

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