Rethinking the Dream: Why Waiting for a Housing Crash May Not Pay Off

Last updated 03/15/2024 by

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Summary:

If you’re banking on a housing market crash to scoop up your dream home, it’s time to rethink your strategy. Despite high mortgage rates, they remain below the long-run average. The current dynamics of supply and demand do not support a significant price drop. With forced selling unlikely and new construction unable to bridge the gap quickly, potential homebuyers may need to adjust their expectations.

The prospect of buying a home during a market downturn can be enticing, offering the promise of snagging a property at a bargain price. However, relying on a housing crash as part of your current homebuying strategy might not a winning option. Recent data and trends in the real estate market suggest a different reality. Let’s look into why waiting for a market crash might leave you waiting longer than anticipated.

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The state of mortgage rates

According to the most recent FRED data, reported mortgage rates are high but still lower than their long-run average. However, these rates only apply to mortgage applications and haven’t made a dent in overall mortgage debt servicing. Basic economics suggests that price is a direct result of supply and demand. Currently, demand is high, and supply remains low. Therefore, a significant increase in supply is needed to drive down prices.

Supply vs. demand in the housing market

At its core, the price of housing, like any other good, is determined by supply and demand. Currently, the housing market is characterized by high demand and low supply. This imbalance is unlikely to shift significantly in the near future, making substantial price decreases improbable.

Challenges in increasing supply

For prices to drop, there would need to be a significant increase in the supply of available homes. However, several factors make this unlikely:

Forced selling is rare: With many homeowners able to service their mortgage debt comfortably, the likelihood of forced selling — which could increase supply and lower prices — remains low.
New construction can’t keep up: According to Realtor.com, even if the rate of single-family home construction tripled, it would still take up to five years to close the current 7.2 million home gap. This slow pace of new construction is insufficient to meet the high demand or lower prices significantly.

Reconsidering your strategy

Given these market conditions, waiting for a crash might not be the most effective strategy for potential homebuyers. Instead, considering the following alternatives could prove more fruitful:

Exploring different locations: Some markets may offer better value or be more likely to see price adjustments.
Adjusting expectations: Modifying your criteria for a “dream home” could open up more opportunities within your budget.
Saving and investing: Continuing to save for a larger down payment or investing your savings wisely could put you in a stronger financial position when you do buy.

Key takeaways

A housing crash in the near future is very unlikely.
The current supply and demand dynamics do not support a significant decrease in housing prices.
Forced selling is unlikely, and new construction is not keeping pace with demand.
Potential homebuyers may need to reconsider their strategy and explore alternative options.

Miron Lulic

Miron Lulic is founder and CEO at SuperMoney, a service that helps millions of people transparently compare financial services such as loans, investments, and more.

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