The short answer is: always—it just depends on how long you’re willing to wait. In the short-term, prospective homeowners are experiencing growing exasperation as the real estate market continues its unyielding upward trajectory. The relentless surge in property prices appears unimpaired. It has been unaffected even by the steepest mortgage rates witnessed in almost a quarter-century. And despite the fact that Utah, in general, and Salt Lake City, specifically, routinely buck national trends, this is one where the real estate tide claims all.

To whit, a further escalation in prices was noted in July, as reported by the S&P CoreLogic Case-Shiller home price index. An upward trend was visible in 19 of the 20 scrutinized cities. Consistent with this pattern, the National Association of Realtors (NAR) reported that a significant portion of U.S. metropolitan areas noted an increase in home prices during the second quarter of 2023.

Expectations of a “housing recession” serving as a counterbalance to exorbitant home prices are dissipating. A slowdown was palpable towards the end of 2022, hinting at a possible correction. However, in a turn of events, property values began ascending once more.

The Threat (or lack) of a Housing Recession

According to NAR, the median sale prices of existing homes are verging on record levels. A 3.9% annual escalation was recorded in August 2023, positioning the prices at $407,100, a stone’s throw away from the peak of $413,800. The notion that the housing recession has virtually ended is echoed by Lawrence Yun, NAR’s Chief Economist.

The resilience of property values is prominent, even as mortgage rates have crossed the 7% mark for the first time in two decades. The underlying issue is traced back to a persistent shortage in housing supply. Data from August, as released by NAR, disclosed a scant 3.3-month supply.

The decline in housing prices is a prospect dismissed by Rick Arvielo, who presides over New American Funding. The consistent shortfall in inventory is the underlying reason, he points out.

Skylar Olsen, the Chief Economist at Zillow, concurs on the persisting imbalance between supply and demand. She projects that the upward trend in home prices is set to continue into 2024. This forecast is a boon for sellers but casts a shadow for aspiring homeowners battling to secure property. In Olsen’s words, the prospect of housing becoming suddenly affordable is distant.

In the aftermath of the Federal Reserve’s June meeting, Jerome Powell, the Fed Chairman, conveyed his focused attention on the evolving dynamics of the housing market. He underscored the sensitivity of the housing sector to interest fluctuations, being one of the first sectors to respond to variations in rates. Powell is attentively monitoring these developments.

Among housing economists and analysts, a consensus prevails that any forthcoming market correction will likely be of a mild nature. A downturn mirroring the magnitude of the Great Recession is not anticipated.

Is A Housing Market Crash Looming?

The buoyancy of the U.S. housing market harks back to the period of 2005 to 2007. In those years, an abrupt crash in home values precipitated catastrophic outcomes. The bursting of the real estate bubble was a precursor to the most profound global economic downturn since the Great Depression. With the housing market now encumbered by escalating mortgage rates and the specter of a recession—a 59% likelihood as per Bankrate’s recent expert survey—a recurring question emerges: is another housing market crash imminent?

Key Housing Market Indicators

As reported in Bankrate’s comprehensive survey of prominent lenders, the average interest rate for a 30-year mortgage reached 7.42% on September 20, a peak unseen since December 2000. A decline of 0.7% was noted in home sales from July to August 2023, as stated by NAR, with a more pronounced 15.3% reduction year-on-year. In August 2023, the median sale price nationwide touched $407,100, setting a record for the month of August. Housing inventory for the same month was recorded at a 3.3-month supply, mirroring July’s figures and significantly lower than the 5-6 months indicative of a balanced market.

In August 2023, ATTOM Data Solutions reported that foreclosure filings — encompassing default notices, scheduled auctions, or bank repossessions — were issued for a total of 33,952 U.S. homes. This figure signifies a 2 percent reduction compared to the previous year. Nevada was notably impacted, boasting the highest foreclosure rate nationwide, with one in every 2,224 housing units receiving a foreclosure filing.

The consensus among housing economists is a potential decrease in housing prices, albeit not as drastic as the plummet witnessed during the Great Recession. A distinguishing factor in the current landscape is the enhanced financial health of homeowners compared to 15 years ago. Presently, the average homeowner with a mortgage possesses impressive credit, substantial home equity, and is locked into a fixed-rate mortgage significantly below 5 percent. A study by Redfin in June corroborated this, revealing that 82.4 percent of homeowners are enjoying mortgage rates under 5 percent.

The scars of the Great Recession linger for builders, instilling a prudent approach towards construction pace. This caution has contributed to a sustained deficit in the housing inventory. In the words of Yun, the absence of adequate inventory is evident. Although price drops might be evident in some markets, the lack of supply makes a 30 percent nosedive in prices highly improbable.

Trends in Existing Home Prices

Predictions have circulated among economists regarding an inevitable stabilization in the housing market, following an era where home values enjoyed a seemingly unbridled ascent. Contrary to expectations, after a recorded dip in February — the first annual decline in over a decade — NAR reported a resurgence, with a 3.9 percent annual increment in August.

Yet, the escalation of home prices has outstripped income growth, exacerbating the affordability crisis. This strain is intensified by mortgage rates, which have more than doubled since August of the preceding year.

The Resilience of Home Prices

The current deceleration in the housing market presents a distinct character, deviating from typical patterns observed in previous real estate downturns. Elevated prices coincide with a drastic reduction in the volume of home sales and a marked decline in housing inventory. Owners who secured mortgages at 3 percent a few years prior are hesitant to sell, a sentiment fueled by the prevailing mortgage rates exceeding 7 percent. Consequently, housing supply is constrained. This scenario precludes a replication of the devastating erosion of property values characteristic of the Great Recession, a period that saw some markets incur a 50 percent devaluation in property worth.

5 Factors Preventing a Housing Market Crash

Housing market experts have outlined five crucial elements contributing to the stability of the current housing market, suggesting that a crash is unlikely.

1. Persistent Low Inventory: As reported by the National Association of Realtors, the housing inventory in August stood at a 3.3-month supply, a significant increase from the scant 1.7-month supply in early 2022. The continuous shortage of houses on the market forces many prospective buyers into bidding wars, driving up prices. This low supply scenario negates the possibility of an impending crash attributed to an overflow of available properties.
2. Slow Pace of Construction: Homebuilders, still wary from the previous housing crash, have been conservative in their building efforts, never returning to the construction boom witnessed before 2007. Current obstacles, such as land acquisition and regulatory approvals, impede their ability to meet the burgeoning demand. Greg McBride, Bankrate’s chief financial analyst, emphasizes the role of supply and demand in driving up prices, assuring that a shift towards equilibrium is a gradual process, not an overnight occurrence.
3. Demographic Shifts Boosting Demand: Various demographic groups are intensifying the demand for housing. The pandemic-induced remote working trend has prompted a need for more spacious residences. Millennials, constituting a significant demographic, are entering their peak home-buying age, while the Hispanic population’s interest in homeownership is also escalating.
4. Rigorous Lending Standards: The mortgage landscape has transformed since 2007 when lax lending practices, epitomized by the infamous “liar loans,” prevailed. In the contemporary setting, stringent lending criteria are the norm, with a median credit score of 769 for mortgage recipients in Q2 2023, as per the Federal Reserve Bank of New York. McBride warns of the potential hazards if the stringent standards are relaxed, recalling the volatile market conditions of the mid-2000s.
5. Subdued Foreclosure Activity: The aftermath of the previous housing crash was marked by a surge in foreclosures, exerting a downward pressure on prices. Contrastingly, today’s homeowners enjoy a substantial equity buffer. The pandemic saw a dip in foreclosure activities, with an increment only recently emerging but remaining significantly lower than the post-crash years.

Now, it’s important to note that all of these stats aren’t focused on Utah specifically. Data from the beehive state certainly factors into the overall data, but we have a much smaller impact in these national numbers. In fact, we rarely do what the overall economy wants us to, for better and worse.