Are we headed for a market crash? Here are six reasons why we aren’t.

Are we heading toward a market crash? The experts have provided six compelling reasons why the answer to that questions is probably no:

1. Record-low inventory. In 2007 at the start of the market crash, we had 29,000 homes on the market. As of very recently, we had 1,900. Based on the law of supply and demand, a market crash based on inventory is simply not going to happen.

2. Builders can’t keep up with buyer demand. They’re still not at pre-2007 levels when there was a glut of inventory that the buyers couldn’t absorb.

3. Interest rates are historically low. In just the last week, rates dipped below 3%. Experts are saying that by the end of 2021, rates should be no higher than 3.7%. While that should quell some refinances, it won’t affect home purchases.

“This market is heated and can’t sustain itself, so at some point, home prices will pull back.”

4. Demographic trends are creating new buyers. During the pandemic, many buyers decided they needed larger places to live once they had family members living with them. There’s also a huge buying pool of millennials who are just beginning to utilize their purchasing power; this group will eventually eclipse the pool of boomers in the market.

5. Lending standards are stricter. Back in 2007, a type of loan called ‘liar loans’ or ‘no-doc loans’ were available and required no income or credit to qualify. That created a glut of buyers that owned multiple properties and had no business owning them. That house of cards collapsed on itself when the market crashed. Due to stricter lending standards nowadays, as of the third and fourth quarters of last year, the average FICO score for qualifying people was 786.

6. Foreclosure activity is muted. Banks have no interest in becoming landlords again by foreclosing on properties. Many people didn’t make their house payments during the pandemic and instead sought forbearance, which allowed them to put the payments they missed on the back end of their notes.

This market is heated and can’t sustain itself, so at some point, home prices will pull back. However, we’re not currently heading for a crash. 

If you have any questions about today’s topic, don’t hesitate to reach out to me.