Could a potential housing market collapse be threatening your American Dream? If owning a home is part of that picture, there might be a few considerations if the economy shows signs of imminent disruption. Can homeowners be sure that their investment will continue to increase in value and that they will still be able to afford their mortgage repayments with the market on its head?

The A and N Mortgage experts have witnessed the market’s incredible run over the past few years, with home prices soaring and strong demand continuing to drive engagement. However, recent events might be indicating a change in pace, and investors are questioning the stability of the United States property market overall.

Is a change coming? Below, the A and N Mortgage team look at everything homeowners needs to know if property values start to fall.

What Homeowners Need To Know About a Housing Market Crash

Buying and selling houses happens every day in the United States, and the health of this market is one of the national economy’s most crucial indicators of continued growth. When the property market is gaining ground, Americans show confidence in the economy’s stability and growth potential. They are also more willing to commit to big purchases, like a home with a twenty to a thirty-year mortgage.

A weak demand across this market has the opposite effect. Investors see ailing sales trends as a signal that investors are worried about the future. The uneasiness can sometimes result from other factors, like interest rate fluctuations, job security issues, and wage rate concerns, which is why experts will look at all these factors before making any concrete housing market predictions.

What is a Market Crash?

The idea of a crash refers to steeply falling prices in the markets, often with knock-on effects for the entire economy. The implications of a national market collapse are daunting enough, but with the United States’ global influence, this event generally has far-reaching results for investors and homeowners worldwide.

A sharp or sudden decline in home prices may happen for various reasons, but an economic recession is the most common catalyst. When people lose jobs or employers reduce working hours, those employees may no longer be able to afford mortgage payments. Defaulting on payments is serious, and a sudden wave of foreclosures will almost certainly cause housing prices to plummet.

The Last Market Collapse

Several factors caused the last market crash during the late 2000s. Subprime mortgages were the main problem, as these high-risk loans moved thick and fast into foreclosure. The knock-on effects were global, and the market is still feeling it over a decade later.

Subprime mortgages are ‘expensive’ loans, typically offered to borrowers with poor credit scores who cannot earn more favorable interest terms. The prime lending rate is a standard percentage set by commercial banks, and, in most countries, these interest rates are in line with the central bank’s parameters. So, subprime loans require higher interest repayments from these risky loan recipients because the market sees them as more likely to go into foreclosure.

During the United States’ housing boom of the early 2000s, many subprime loans began to go into default. Why so many people began to default on their mortgages around this time is still a trillion-dollar question. Still, experts blame a lethal combination of unreliable investors, risky lending practices, and eventually, the inevitable freefall of prices.

The Latest Housing Market Predictions

Many people lost a lot of money in those unstable years, including banks and other lenders. So, are there any troubling trends emerging for current homeowners? Could history repeat itself after the worldwide COVID-19 pandemic changed how we work, travel, and think about our home base?

US Housing Trends Up to 2022

Job loss and pay cuts have been widespread during the COVID-19 pandemic, and financial insecurity is rife. If people no longer feel able to afford homes or repay mortgages, there could be some concerns. However, interest rates are at an all-time low, with cheap refinancing options propping up the market; far more support than before the last collapse.

Working from home has decreased the cost of commuting and brought the new “office” to a residential location. People are willing to pay more to purchase a home that suits their work preferences, and Americans remain quite optimistic about this shift. The government’s efficient vaccine distribution has also meant that people are spending money more easily, so an increase in demand for housing does not seem implausible.

The stock market is still thriving, and people are increasingly spending money on consumer goods in general. By March 2021, the average home price in the United States increased by more than 11 percent, the most significant one-month increase since 1980. So, by all accounts, the market seems to be going strong.

Housing Sales Forecasts After 2022

Extreme growth in the real estate market has experts talking about a market correction. For example, a recent Zillow report expects home prices to rise by 16.4% by December 2022, a spike that could disrupt the balance the market is currently enjoying. Two factors seem to be at play—decreasing housing supply and low mortgage rates.

The Housing Supply Declines

There are fewer homes for sale because people remain in their current locations for longer. New home construction has not been able to keep up with the increasing demand, which is also pushing up prices. Real estate agents are seeing more buyers than ever before, but with no properties to show them, sales have decreased by almost 30% since the previous year.

Low Mortgage Rates

Another factor driving up home prices is the low mortgage rate that is making it more affordable for people to buy homes of their own. However, rates are slowly increasing and may continue to go up if the current market conditions remain constant. An increase in the mortgage lending rates will make it more difficult for people to afford a home, which may lead to a slight decrease in demand.

Will it be enough to counteract the housing supply crisis? Perhaps. These rates tend to go up and down based on the economy, inflation, and many other factors, but they are still historically low, and it will take a lot to change that.

Four Signs of a Possible Market Disruption

Rapidly rising home prices are not the only indicator of a potential housing market crash. The considerations below could also affect current homeowners’ decision to purchase their next property:

1. An Unsteady Stock Market

What is happening in the economy? Is the stock market unstable? Housing could soon follow the trend.

Those thinking about buying a home should be watching these trends closely. If the stock market seems stable, buying property or taking on a mortgage will be less risky.

2. Decreasing Sales for Existing Homes

Has there been a sharp decrease in existing home sales? The property market might be slowing, which could result from falling prices and lead to even further decreases. If experts forecast stable home sales or a slight decrease due to rising interest rates or less housing available, first-time buyers may have an advantage at the negotiation table.

3. Fewer New Home Sales

A decrease in new home sales is a sign that the building industry has hit a slump. It may be because of a reduction in demand or difficulty securing financing, but it will affect the market overall. If the experts expect the demand for new home sales to decrease in the next year, it may be a good time to look at your first home purchase while prices dip.

4. Increasing Foreclosures

An increase in foreclosures almost always makes market players nervous. If people are losing their homes because they can’t afford to make their mortgage payments, it may be due to rising interest rates, job market pressure, and decreased home prices. In all cases, it is a warning sign to new home buyers that a market crash may be in the cards in the coming months or years.

Successfully Navigating the Property Market

Homeowners should watch all these factors as they watch the market prices. However, it seems unlikely that the United States will see a decrease in home prices in the next year or two. People still want to buy homes, and there are not enough properties on sale yet to meet these needs.

Will the housing market crash soon? The vast number of factors make this prediction almost impossible under the current economic climate, but the signs above are good talking points for home buyers and their mortgage providers. Sky-high home prices, low mortgage rates, and an unsteady stock market are big red flags, so do the research before diving into a new purchase decision.

If you are thinking about buying a home, why not chat with an experienced A and N Mortgage team to learn more? Our goal is to help home buyers make smarter financial decisions as they navigate the housing market.

A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.