Will the Housing Market Crash in 2024?

The housing market was red hot not very long ago. Interest rates were at historical lows, boosting buyer demand in a market already experiencing a low housing supply. As a result, home prices shot through the roof, pushing many hopeful buyers out of the market as interest rates began to climb back up.

Things have drastically changed since then. Home price growth has slowed significantly, but home sales continue declining as buyers struggle with affordability. However, this doesn't mean a housing bubble burst is on the horizon.

The year isn't over yet, but the question on everyone's mind is, "Will the housing market crash in 2024?" Read on to learn more about housing market predictions and why most experts don't think we're headed toward a market crash.

What Causes a Real Estate Market Crash?

A real estate market crash happens when a housing market bubble bursts. This occurs when demand grows, and buyers flood the market. This causes a drop in the housing supply, pushing home prices up as more buyers compete over fewer homes. As prices rise to unsustainable levels, buyers pull out of the market. The bubble finally bursts when home prices come crashing down due to decreased demand.

Housing market crashes are generally caused by a combination of:

• An economic downturn resulting in job losses, fewer job openings, and less disposable income.
• Higher mortgage rates, which make homeownership more unaffordable. This can lead to an increase in mortgage defaults and foreclosures.
• Tightening credit standards. Would-be buyers leave the market at higher rates, pushing up supply. When this happens, prices tend to fall.

We're in a housing bubble, but it probably won't pop. Experts predict a market correction rather than a crash.

Differences Between the Housing Market Today and the 2008 Crash

A housing market crash can seem alarming, especially if you lived through the Great Recession and the 2008 housing market crash.

A combination of factors caused the 2008 crash, but the main culprit was the downfall of the subprime mortgage market. The subprime market lends money to borrowers at a greater risk of default, and mortgages were issued to people who weren’t in good financial standing to purchase homes.

A rise in adjustable mortgage interest rates and unemployment increased the number of foreclosures nationwide. Demand plummeted, pushing home values down. The Federal Reserve Bank of Chicago estimated that there were approximately 3.8 million foreclosures between 2007 and 2010 because homeowners were unable to make mortgage payments.

Our current situation is very different than it was in 2008. There are laws and regulations to prevent predatory lending practices, and more qualified buyers are in the housing market. Another big difference was that there was a big push for new construction leading up to the crash, but when demand fell, many housing developments sat empty.

Current State of the Housing Market

The U.S. housing market is in a much better condition than it was in 2008.  However, we continue to deal with an affordability crisis that has pushed aspiring homeowners out of the market.

Below, you'll find details on the state of the housing market in 2023.

Home Prices

Home prices are much higher than they were a few years ago. According to data from the National Association of Realtors (NAR), the median sales price for a single-family home sold in July 2019 was only $284,000. In July 2023, it was $406,700 — a 43% increase. The good news is that housing price gains have slowed significantly and are only up by 1.9% from the previous year.

For the remainder of the year, Fannie Mae predicts a 3.9% year-to-year increase in the fourth quarter, while Freddie Mac says prices will rise 0.8% over the next 12 months.

Interest Rates

The Federal Reserve, the central banking system that controls the nation's monetary policy and guides our economy, has raised rates by 5.25 percentage points since March 2022, putting downward pressure on inflation. Fed rate hikes create a ripple effect in the market. As short-term interest rates go up, so do long-term interest rates, such as mortgage rates.

Interest rates have increased significantly since hitting record-low levels at the end of 2020 — going from 2.66% on a 30-year fixed-rate mortgage to over 7%, its highest level since 2001. Nearly 92% of mortgage holders are locked into a mortgage rate under 6%, so homeowners aren’t motivated to sell.

Freddie Mac says ongoing economic strength will likely continue putting upward pressure on rates.

Housing Inventory

Available housing inventory is weak, but buyers will have better luck with new home construction than existing ones. Total housing inventory was 1.11 million units, up 3.7% but still down 14.6% from a year ago. It would take 3.3 months to sell all homes at the current sales pace.

Tight inventory of existing homes — 46% below historical averages — keeps housing prices high. Experts say it’s unlikely that the inventory problem will be resolved this year.

Will the Housing Market Crash in 2024?

Sellers will likely have the upper hand in 2024. There are more buyers than homes available, which experts don’t see changing anytime soon. Buyers will also have to navigate affordability challenges due to higher interest rates and home prices. “It will require careful negotiation to get a better price in 2024,” said Chen Zhao, leader of the economics team at Redfin.

Experts point out five reasons they don’t see a crash happening.

1. Inventory is very low amid high buyer demand.
2. Builders didn’t build quickly enough, which allows supply and demand to slowly come back into balance.
3. There’s a strong demand for homes, especially from millennials.
4. Lending standards are strict, ensuring only financially stable buyers can qualify for a mortgage.
5. Foreclosure activity is low.

I don’t see a housing market crash happening this year or next (which I discussed in a recent article on GOBankingRates and Yahoo Finance). Things are slowing down, but there’s still high demand for homes. Also, home equity is at its highest level, so homeowners still have a lot of value in their homes. If rates cool later this year, as experts predict, then we should see an uptick in market activity.