Housing market ‘crash?’ You may have missed it.


Prices are rising again and there’s little to bring them down

In 2022 ConsumerAffairs published a study that found 63% of respondents were hoping for a housing market “crash,” thinking a plunge in prices would make it easier for them to buy a home.

In early 2023, home prices on a national average basis began to go down. The median home price declined slightly for five straight months. Then in July, prices started rising again.

If there was a housing “crash,” economists say that might have been it. Shorter than predicted and not much of a crash at all.

But how can people afford homes priced near record highs when mortgage rates are now well over 7%, more than double what they were in late 2021? The truth is, many can’t. But that doesn’t seem to matter.

Those high mortgage rates are preventing current homeowners from selling. They don’t want to give up their 3% mortgage rate for one north of 7%.

There’s still a housing shortage

Because they aren’t selling, the housing shortage – which began more than a decade ago – is getting worse. There are enough buyers who can afford today’s high prices and lofty mortgage rates so that when a home comes on the market, there is still competition for it, which often drives up the price.

If you look at home sales you might think we are in the midst of a housing market crash. The National Association of Realtors (NAR) reports sales of existing homes fell 2.2% in July from the month before. Compared to July 2022, sales plunged 16.6%.

If sales fell by that amount and there were lots of homes on the market then it probably would be a housing market “crash” and prices would fall accordingly. But sales fell because there simply weren’t enough homes on the market and instead of pushing prices lower, may actually have contributed to the price increase.

Foreclosures, which were largely responsible for the last housing market crash, are almost non-existent these days. NAR reports distressed sales – foreclosures and short sales – represented 1% of sales in July, virtually unchanged from the previous month and the previous year.

'The supply just isn't there'

“Even in a market where demand has been hammered by higher rates, the supply just isn’t there,” Diane Swonk, chief economist at KPMG, told the Wall Street Journal. “Short of a flood in supply, it’s hard to bring these prices down.”

So now buyers are faced with the double whammy of higher home prices and high mortgage rates. NAR reports the median existing home price for all housing types in July was $406,700, an increase of 1.9% from July 2022, when the median price was $399,000. Prices rose in the Northeast, Midwest and South but were unchanged in the West, which has some of the most expensive housing markets in the country.

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