During the entire pandemic, it is evident there is widespread speculation around everything. Speculation on the stock market, speculation on real estate, personal health, jobs, and so forth. Buyers are no longer confident in purchasing property immediately but have chosen to delay their purchases for a couple more months when they believe prices will dropdown. Below are 10 things that people should look out for when anticipating a crash in the Real Estate Market, the first 5 being the most pivotal:
- Asset bubble bursts
When the price of something seriously inflates, it may indicate an upcoming crash. 2004-2005 saw housing prices jack up, only to crash in the 2008 crisis. We saw housing prices inflate similarly in 2017, is this an indicator for an upcoming crash?
- Increase of unregulated mortgages
In 2018, over 50% of mortgage lenders were unregulated. This lack of unregulated lending allows for lots of high-risk practices that may prove to be unstable all around for the economy, especially on such a magnitude.
- Rapidly rising interest rates
High-interest rates mean fewer loans which mean slower building/buying. Right now, amongst COVID, we have exceptionally low-interest rates. However, with people being more cautious and unlikely to spend in the market, who knows the long-term effect this may have?
- Inverted yield curve
When the yield curve on US treasury notes inverts, this means the short-term interests become higher than the long-term yield, meaning investors essentially view the short term as riskier than the long term, and don’t invest as frugally. This can be detrimental to mortgages.
Evident here there is a noticeable inversion, actually the most extreme inversion in the past decade. This is not good news for the American economy and may signal a prospective crash.
- Change to the federal tax code
The housing market sensitively responds to changes in tax code. Trumps tax reform plan is speculated to adversely affect the market.
- Return to risky derivatives
- Greater number of house flippers
- Fewer affordable homes
- Rising sea levels
- Warnings from officials
The last 5 are relatively self-explanatory and will not be covered as they historically do not have as immediate as an impact as the first 5. One interesting thing to note about Rising Sea levels would be the massive amount of damages caused by flooding, especially in coastal areas like Florida, where damages were, with estimation, aggregated to a 136 billion by the year 2045.
To conclude, none of this information really means there will be, or will not be a crash. Like all future events, the best we can do is make as much of an educated guess as possible. There are an almost inconceivable number of variables that play into the equation of a housing crash, but as presented by the above information, it seems to be more likely than not. The question at this point poses to be when.
Amadeo, Kimberly. “Is the Real Estate Market Going to Crash?” The Balance, 28 Feb. 2020, www.thebalance.com/is-the-real-estate-market-going-to-crash-4153139.
Tomwfranck. “Bond Flash Economic Warning as 3-Month Yield Tops 10-Year Rate by Most since Financial Crisis.” CNBC, CNBC, 29 May 2019, www.cnbc.com/2019/05/29/us-bonds-wall-street-monitors-fresh-batch-of-economic-data-auctions.html.