Is The Housing Market Going To Crash?

Is the housing market going to crash? This is a question on everyone's minds right now with the state of the economy.

By Doug Norrie | Published

Is The Housing Market Going To Crash

Back in 2008, we saw one of the great real estate collapses ever when a variety of factors, namely big banks’ willingness to lend to underqualified buyers at an alarming rate, ultimately led to a major market crash that took years to recover from. The events of that year sparked books, movies, and a whole generation wary of when it might happen again, asking themselves almost constantly, “Is the housing market going to crash?”

But then, as often happens, things started to turn around and over the last few years we’ve seen an almost unprecedented bull run on housing fueled by another set of factors including lowered interest rates, investment dollars going into the market, and much more. So, is the housing market going to crash after this run? Let’s take a look at what got us here and what to expect.


I suspect we all know the story of the housing market over the last few years. Prices have skyrocketed at an almost unprecedented rate leading to some huge wins for some sellers and massive frustration for many looking to buy. Many have heard the story about someone seeing a home hit the market only to find there were multiple offers over asking price in what seemed like the first 30 seconds. It’s become all too commonplace. Is the housing market going to crash because of these prices though? Well, not so fast.

For starters, just look at how things have climbed since the 2008 housing crash and especially in the last couple of years, essentially starting in 2020. It looks like someone who arrived at basecamp at Mount Everest and then began the two-year climb to the peak.

Is the housing market going to crash if people are paying more? No, that’s not how this works. There are a number of different factors which go into figuring out if we are still on the climb up, if things have leveled, or if there’s going to be a precipitous drop.


One reason the housing market has seen such gains over the last few years is that it’s been easier to get a hold of money to make the purchase. Whether it’s first-time home buyers, house flippers, investors, or relocators, getting the cash to make the buy had almost never been easier. If the housing market going to crash this wouldn’t have been the time.

Again, starting in 2009, take a look at how the interest rates fell (in the aggregate) over a little more than a 10-year period. It finally hit the low point in 2021 at 2.65%. Things hovered around there for a bit but then you can see what’s been happening recently. Check it out when thinking about is the housing market going to crash:

There are many who that believe when interest rates climb like this it means homes will drop in price. That’s where we get questions around if or is the housing market going to crash Historically, this has often been the case and the math is easy. When money is more expensive to borrow, the prices fall to fit. But this time around things look a little different than before. There are mitigating factors that would suggest it isn’t going to be the case.

Is the housing market going to crash because of higher interest rates? It doesn’t look that way. Let’s look at three reasons why not.


Is the housing market going to crash because of inventory? Well, one way to drive prices of really anything down is to have more of that thing than consumers are willing or able to buy. This is basic economics and it applies to the housing market as well. Unlike other economic downturns or falling in home prices, there was a saturation of inventory (too many houses) compared to those able to step up and purchase them. But that isn’t the case right now. In fact, it’s the opposite. There currently aren’t enough houses nationwide for those willing and able to buy. Even with rising interest rates, plenty of qualified buyers are still in the market for a home and that’s going to keep prices at least steady, and even on a steady trend upward.

Again, some of this is “easy”. Homebuilders have not kept up the correct pace in building new units for increasing demand. And this has been going on essentially since the tail end of the last housing crash. Because there was some hesitancy (and capital) about homebuilding for an extended period of time, we’ve reached the point where that has caught up with the rest of the market in a big way. So, is the housing market going to crash because of this? Quite the opposite.


In 2008 and before, the lending market was akin to the Wild West in terms of rules, regulations, and practices. No-Doc loans were commonplace and lenders essentially gave money for homes to anyone with his or her hand out. That practice among mortgage companies and banks for an extended period led to home price surges that were off the charts. Among the many reasons for the last housing “collapse”, this was at the forefront. The lending practices, such as they were, went unchecked for so long that the market was flooded with new (many times very underqualified buyers) which then, in turn, drove the home prices up and up. Eventually, that practice cratered and we saw multiple companies go belly up in the process.

And since then mortgage companies, thanks in large part to more government oversight, have tightened up their business, making it more in line with the actual ability to buy a home at a certain cost rather than a wink and nod.


Is The Housing Market Going To Crash

One other thing about this most recent housing market that was different than the pre-bubble time in 2008 is that the money for homes is also coming from a different place this time around. For a long time, the housing market was built on individual or family buyers entering and looking for a place to live or maybe an investment property here or there. These types of buys comprised much of the market and short of larger, multi-unit purchases, houses were bought and sold by single entities. But that is no longer the case.

So is the housing market going to crash because of the shift?According to RedFin, institutional investors accounted for 18% of the overall home purchase in the United States in 2021’s third quarter. And even with rising interest rates, that’s unlikely to decrease this year and beyond. In fact, it could only go up. According to The Asset, there are estimates that institutional investors will put somewhere in the neighborhood of $77 billion into the global real estate market this year. This is part of a portfolio shift for many investment firms, placing their holdings in physical assets like real estate instead of more traditional markets. 

This is why asking about is the housing market going to crash becomes a different proposition this time around? It’s unlikely to crater if more “big” money is continuing to flood the market. Those properties will turn into buy-and-flip or buy-and-rent-out scenarios which will actually only drive prices.


From these factors, is the housing market going to crash? It sure doesn’t look to be the case. Numerous experts believe we are set to see a steady increase in prices over the coming years. Not like what we saw over the last two, but it doesn’t appear prices are going to drop precipitously anytime soon.