When will the housing market crash again?

A housing market crash happens when home values plummet due to a lack of demand for homes or an oversupply. Housing market crashes can happen for multiple reasons, such as a deep recession or depression causing homeowners to lose their jobs, high mortgage rates making homes unaffordable, or a glut of available homes that buyers don’t want or cannot afford to buy.

During the last housing market crash, home prices dropped over 15% in 2008 compared to 2007, according to the S&P/Case Shiller Home Price Indices.

 

When will the housing market crash?

There are no signs that the U.S. housing market is about to crash. In fact, the economic outlook and expectations for the real estate market nationally were positive for 2024. A housing crash occurs when demand drops dramatically and home values tumble.

“Unless there is a significant surge in the rate of unemployment, which is currently not in the forecast, the housing market is expected to continue to rebound from 2023 lows,” said Selma Hepp, chief economist of real estate data analytics firm CoreLogic, in an email.

Lawrence Yun, chief economist and senior vice president of research for the National Association of Realtors®, agreed that there are no indications that a housing market crash is imminent.

“There is a housing shortage and ongoing job creation,” Yun said in an email. “I would worry if there was an oversupply and if we were in a job-cutting recession, but that’s not the case today.”

In a December report, CoreLogic reported that year-over-year home prices increased by 3.4% from Oct. 2023 to Oct. 2024. From September to October, prices went up by 0.02%. These steady inclines signal that the housing market isn’t crashing anytime soon.

Zillow’s November Home Value and Home Sales Forecast predicts national home prices will increase by 2.5% in 2025.

“That’s a healthy sign that the market is becoming more balanced,” said Orphe Divounguy, a senior economist at Zillow, in an email. “Low mortgage costs, record high home equity, rising financial wealth, and a tight labor market means very few people face mortgage delinquency and would find themselves having to walk away from their homes.”

Hepp anticipated that home sales would likely increase due to lower mortgage interest rates and a rise in the number of existing homes on the market. Although mortgage rates probably won’t plummet this year, they should drop at least a little compared to 2024.

Housing market crashes: Supply and demand dynamics

Some people think the housing market will crash again because the volume of sales has been sluggish, said Rick Sharga, founder and CEO of CJ Patrick Co., which provides market intelligence and consulting for real estate and mortgage companies. About 4 million existing homes were sold in 2023, the lowest number of home sales in about 25 years. Sharga said sales 2024 reports will likely show fairly weak sales last year, and sales should stay slow in early 2025.

“There will continue to be demographically driven demand; the country has the largest number of young adults between the ages of 25 to 34 in its history,” Sharga said. “Demand — while somewhat weakened — still outpaces supply, which has led to home prices continuing to rise, despite today’s higher mortgage rates.”

“In a normal market balanced between buyers and sellers, we would have a six-month supply of homes,” Sharga continued. “In the years leading up to the housing crash, there was a massive oversupply of homes for sale: nearly a 13-month supply.”

Housing crisis lessons for today

The housing crash that started in 2007 and contributed to the global financial crisis continues to weigh heavily on the minds of many economists and consumers. But the factors that led to that crash are not in place today.

“Literally everything is different about today’s housing market dynamics than the conditions that led to the housing crisis,” Sharga said. That includes a limited supply of homes, high levels of home equity, economic strength, and the strict guidelines mortgage borrowers must meet.”

“There are little-to-no risky subprime mortgages today,” Yun said. “Therefore, there won’t be an implosion of mortgages. Moreover, most homeowners have locked into low fixed-rate mortgages.”

Lending standards are significantly stricter today, Hepp said. In addition, most households have much more home equity than in 2007, because homeowners have refinanced into low mortgage interest rates and because of the rapid rise in home prices. The average loan-to-value ratio (LTV) is much lower now than during the housing crisis, she said.

Divounguy said that in 2007, homeowners who couldn’t afford their monthly payments typically didn’t have much home equity.

“When their home couldn’t sell, they couldn’t cut their asking price in order to sell their home,” Divounguy said. “As a result, many walked away from their homes.”

In contrast, today, people who sell have plenty of home equity and can afford to cut sale prices if they need to sell.

“Home equity is still near record highs in most housing markets,” Divounguy said. Most homeowners have extremely low monthly payments due to record-low pandemic mortgage rates. As a result, mortgage delinquency and distressed sales remain low.”

Signs of a housing market crash

Whether you’re monitoring your home’s value or hoping to buy a new home, you may want to watch for indications of a future housing market crash. An economic shock such as a significant stock market crash or big, prolonged job cuts could signal the start of a housing market crash, Yun said, along with a large increase in the supply of homes.

If unemployment rose rapidly and homeowners couldn’t afford their mortgage payments, they could lose their homes to foreclosure if they couldn’t sell them, Hepp said. A large increase in foreclosures would bring home values down, leading to a potential housing crash.

“Currently, what may be a concern for some markets is the significant increase in non-mortgage related costs, such as property insurance and taxes,” Hepp said. “That may be a bigger concern for households with fixed incomes who may choose to sell their home if they can no longer afford to make their payments. If a significant number of properties were being listed as a result, that could dampen home prices and weaken a housing market. Nevertheless, with housing shortages still outweighing the impact of these additional expenses, a housing crash is not likely, especially a widespread one.”

Sharga suggests that consumers watch their local market conditions, such as whether the population and the job market is growing or declining, along with wages, home sales, and home prices.

“While a national housing crash remains very unlikely, every market is unique, and some are likely to see prices go down even as the national numbers are going up — probably not enough to designate it as a ‘crash,’ but enough to make a difference for some homeowners,” Sharga said.

Learn more: Which is more important, your home price or mortgage rate?

What a housing market crash could mean for home buyers

More than one-quarter of consumers (29%) believe a housing crash is the only way for them to afford a house, according to a LendingTree survey.

A crash usually means there is an oversupply of homes on the market and sale prices have plummeted. However, a housing market crash is often accompanied by a recession and job losses, making it harder for someone to qualify to buy a house. Also, homeowners may not want to sell in a down market.

Still, the possibility of less competition for homes and the potential for lower mortgage rates that could accompany a financial crisis tempts some buyers to hope for a real estate market shift.

Learn more: The differences between a buyer’s market vs. seller’s market in real estate

What a housing market crash could mean for sellers

In a housing market crash, homeowners who don’t need to sell may prefer to wait until home values begin to regain their strength. Being “underwater” on your mortgage, or owing more on your mortgage balance than the value of your home, as many people were during the previous housing market crash, doesn’t immediately impact your finances — unless you plan to borrow from your home equity.

The bigger impact would be on home sellers, who would likely need to drop their prices because buyers would be looking for a bargain.