Why won't the house market drop?

Even though the home market is slowing down, this slowdown isn't like most others. Homes sales have dropped sharply, and the number of homes for sale has also dropped firmly. Homeowners who locked in mortgage rates of 3 per cent a few years ago aren't selling, and who can blame them when rates are back up nearly 7 per cent? This means there are even fewer homes for sale. So, this correction won't be anything like the Great Recession, when some home markets lost half their value.

Economists studying the housing market point to five reasons why there won't be a crash soon.

The National Association of Realtors says there were only enough homes for sale to last three months in May. At the beginning of 2022, that was only enough for 1.7 months. Because there is still insufficient stock, many buyers still have no choice but to bid up prices. It also shows that a price drop is not likely shortly because supply and demand work together.

Builders didn't build fast enough to meet demand. After the last crash, they cut back a lot and never fully returned to where they were before 2007. Now, they can't buy land and get permission from the government fast enough to meet demand. Even though they are building as much as they can, it doesn't look like they will build too much again like they did 15 years ago.

Greg McBride, CFA, Bankrate's top financial analyst, says that prices have gone up because there is more demand than supply. "As more builders put homes on the market, as more homeowners decide to sell, and as potential buyers can't afford to buy, supply and demand can return to balance. It won't be done right away."

Changes in the population are bringing in new buyers: On many fronts, people want homes a lot. During the pandemic, many Americans who owned homes thought they needed more prominent places, especially since more people started working from home. There are a lot of Millennials, and they are in their best buying years. Hispanics are a young, growing group that wants to buy a home.

There are still strict lending rules: In 2007, it was customary for people to get "liar loans," where they didn't have to show proof of their income. Lenders gave mortgages to almost anyone, no matter what their credit past was like or how much money they put down. Today, lenders have strict requirements for borrowers, and most people who get a mortgage have excellent credit. The Federal Reserve Bank of New York says that the typical credit score for mortgage borrowers in the first quarter of 2023 was a high 765. McBride says, "If lending standards loosen and we go back to the wild, wild west of 2004–2006, that's a whole different animal." "We start to worry about a crash when we start to see prices being bid up by the artificial buying power of loose lending standards."

There aren't as many foreclosures as there used to be. After the housing crash, millions of foreclosures entered the market and drove down prices. That's no longer the case. Most people who own their homes have a good amount of wealth in them. During the height of the pandemic, lenders didn't send out notices of failure, so foreclosures were at a record low in 2020.

Everyone agrees that home prices still push the limits of what people can pay. But this boom shouldn't turn out to be a bust.