It’s no secret that the housing market is booming, especially here in Phoenix. That makes some people wonder, “Are we heading for a housing market crash?” After all, it’s only been 15 years since the last market crash happened which ended up igniting a worldwide recession.

However, most experts agree that the more likely scenario is that home prices will continue to rise, but more slowly in the upcoming months and a housing market crash as serious as the one in 2007/8 is unlikely. There are several reasons for that.

Higher Lending Standards

Back before the last crash, banks and mortgage companies had very loose lending practices. Seemingly anyone could get a loan regardless of their income, or their ability to repay. Not so today. The Consumer Financial Protection Bureau was created to enforce stricter lending regulations.* Buyers today have to undergo strict income, credit, & asset checks. 

Pandemic Mortgage Forbearance

At the start of the pandemic, financial regulators instructed mortgage lenders to offer a solution to borrowers who may have lost employment. Homeowners had the opportunity to request forbearance on their mortgages allowing them to make reduced payments, or no payments, while a moratorium was put on foreclosures.** During the last crash, the market was flooded with defaulted mortgages, but mortgage forbearance has prevented that from happening this time.

Homeowner Equity

A homeowner’s equity is the difference between what they owe on their home and what the home’s market value is. The longer a homeowner stays in their home, the more equity they build up. This equity can be a cushion for them should their home value fall.

Home Prices will Increase…But at a Slower Pace

In the last crash, overbuilding by developers & builders led to an over supply of properties, which eventually led to decreased home values. That is not the case today. High demand and low inventories continue to drive prices higher. Low interest rates continue to attract buyers, many of them millennials taking advantage of low rates as they purchase their first homes. However, eventually house values will level off as home prices outpace income growth causing some buyers to get priced out of the market – a trend that is not indefinitely sustainable.

While no one has a crystal ball and can predict the future, it seems clear that the current landscape with its continued high buyer demand and low inventories doesn’t fit the typical scenario for a housing market crash.

Still Concerned About a Housing Market Crash? Contact Us Today

If you’re considering buying or selling a home in metro Phoenix in this current market, don’t roll the dice before you reach out to us to talk through your options. You need an experienced Realtor® in your corner. Contact the Donnelly Group at 480-792-9700 or email us today. We would love to help you.