Should buyers worry about home values falling? (Podcast)

May 19, 2022 - 3 min read

Is a housing crash imminent?

Home prices keep setting new records for growth rates, making it an incredible time to own property.

But because of those rapidly expanding values, many wonder if we’re in a housing bubble that could burst any day.

Mortgage expert Ivan Simental addresses whether or not you should be taking any whispers of a housing market crash seriously in a recent episode of The Mortgage Reports Podcast. Here’s what he had to say.

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Why are home prices so inflated?

For the last two and a half years, the housing market has been on fire.

When the pandemic’s initial shutdown occurred, mortgage volume stopped. But a few weeks later, listings started flying off the market once interest rates greatly fell.

“The housing market does appear to be operating without brakes as home prices continue to climb.”

Home prices rose a ridiculous 41% from the start of 2020 through the first quarter of 2022, according to the National Association of Realtors.

“The housing market does appear to be operating without brakes as home prices continue to climb,” Simental said on the podcast.

The Federal Reserve of Dallas said the shifts in disposable income, the costs of credit and access to it, supply distributions, rising labor and raw construction material costs are among the economic reasons for sustained home price gains, Simental explains.

The supply and demand of it all

Market equilibrium is defined as there being six months of properties for sale at a given time in the U.S. The latest data shows a supply of 1.7 months, Simental says, and not having enough homes for all the people who want to buy is, “the biggest problem.”

This ongoing issue of low inventory stokes competition, and in turn, keeps prices high. Simental talks about the massive amount of potential buyers out there, as millennials and generation Z represent the largest share of purchasing power in the country’s history.

While that inherent demand will keep things afloat, Simental’s opines, a market correction — a slight dip of 5%-10% in value — could come.

With rates increasing significantly in 2022, sales and demand slow as more potential buyers get priced out. This could eventually help tip the scales in favor of buyers if listings stay on the market longer.

The bottom line for crash worriers?

So, is a housing crash on the horizon?

Even if a market correction comes, it shouldn’t be anything even remotely resembling the 2008 crisis, Simental concludes.

“A lot of the experts are stating that this most likely will not happen because we are still in a very low inventory market and there aren’t enough houses for the people buying,” he said. “Even with everything going on in the world, the cost of inflation and all goods going up, we’re still in a very healthy market.”

So don’t be worried about buying a new home and then watching its value tumble. Even if prices dip it should only be a slight correction, and values should continue to grow over time.

In other words, fear of a housing crash shouldn’t stop you from entering the market. Rising home values are more likely to help you than to hurt you once you become a homeowner.

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Paul Centopani
Authored By: Paul Centopani
The Mortgage Reports Editor
Paul Centopani is a writer and editor who started covering the lending and housing markets in 2018. Previous to joining The Mortgage Reports, he was a reporter for National Mortgage News. Paul grew up in Connecticut, graduated from Binghamton University and now lives in Chicago after a decade in New York and the D.C. area.