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When Will Housing Market Crash? Investor Warning ‘Black Swan’ Moment Coming Soon

U.S. housing markets, an integral component of America’s economy, have experienced unprecedented fluctuations over the years. The most recent concerns arise from warnings by real estate experts of a potential “Black Swan” event—a term used to describe unforeseen yet influential incidents. Dive with us as we unravel the facts, forecasts, and the very fabric of the housing market’s current scenario.

The Roots of the Rumor Mill

Sean Terry, ex-Marine and founder of Flip2Freedom, has drawn significant attention by voicing his concerns over the current volatility in the housing market. His predictions, though alarming, are based on the juxtaposition of soaring housing prices and mounting interest rates.

Federal Reserve’s Strategic Play

Under Chairman Jerome Powell’s direction, the Federal Reserve has been using interest rate management strategies in an attempt to curb inflation rates (currently sitting at 3.18%) and bring them down closer to an acceptable 2% level. But how does this tie into housing market performance? According to Terry, a spike in interest rates could be a strategy to crash the market and pave the path for future affordability.

2008 vs. Now: Spotting the Differences

Comparing today’s market dynamics to the 2008 financial crisis can be enticing, given the evident parallels. But while similarities exist, it’s essential to understand the differences. The market crash of 2008 was heavily influenced by the prevalence of subprime mortgages and a significant oversupply of homes—factors absent in today’s market conditions.

2023’s Market Dynamics

2023 has already witnessed significant jolts in the banking sector. The closure of First Republic Bank, followed by its acquisition by JPMorgan Chase, and the downfall of Silicon Valley Bank and Signature Bank, have all hinted at a turbulent financial landscape. Terry stresses the alarming difference between the Case-Shiller home price index and real disposable income—a key indicator of a market bubble.

Views from the Experts

While Terry’s predictions ring cautionary bells, it’s crucial to factor in different expert opinions. The National Association of Realtors (NAR) attributes the recent 2.2% drop in home purchases to inventory issues and rising mortgage rates. Lawrence Yun, NAR’s chief economist, suggests that the current problem lies in limited supply. The shortage began pre-pandemic and worsened as low-interest rates during COVID-19 attracted more buyers.

Possible Outcomes for the Housing Market

Lawrence Yun has painted two potential scenarios for the future:

  1. A Calming Economy: With inflation easing and slightly lower mortgage rates, more buyers could step into the market. This scenario relies heavily on homebuilders expanding their constructions, which could lead to stable or even increasing home prices.
  2. An Economic Recession: A less favorable outcome where job losses trigger a decline in consumer confidence, even though mortgage rates might dip. In this scenario, with the reduced risk of subprime mortgages and oversupply, it’s unlikely we’ll see a crash akin to 2008.

What Lies Ahead?

At this month’s Federal Open Market Committee (FOMC) meeting, all eyes will be focused on strategies designed to shape the U.S. housing market’s trajectory – not predictions or expert opinions but actual factors including inflation rates, interest rates and supply dynamics that impact its path forward.

Treading with Caution

Though any prediction regarding “Black Swan” events cannot be completely dismissed, it’s wise to approach any predictions with caution and remain informed and prepared as much as possible when looking ahead. As with any sector or market, housing markets are dependent upon many interlinked elements which influence them; so keeping informed and prepared remains key when looking towards what lies ahead for any investor, homebuyer, or simply observer.

About the author

Jack Reuben Fletcher

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