- Experts overwhelmingly say that the housing market isn't going to crash anytime soon.
- The last housing crash helped cause today's lack of supply, which is what's keeping prices from falling.
- Mortgage rates, however, are expected to go down next year. This will help make homeownership more affordable.
Thanks to elevated mortgage rates and high home prices, it's been a tough year for homebuyers. In Fannie Mae's most recent National Housing Survey, only 20% of consumers said they think it's a good time to buy a home.
Home prices are up 2.6% year over year, according to Zillow, and many housing market forecasters expect them to continue trending up throughout the next year.
The challenging housing market has many would-be buyers wondering if home prices will ever go down, or if they might crash in the near future.
Is there a chance the housing market will crash anytime soon? And if it does, will that make homes more affordable for first-time homebuyers?
Is the housing market going to crash in 2024 or 2025?
Though many Americans believe the housing market is at risk of crashing, economists who study housing market conditions generally do not expect a crash in 2024 or beyond unless the economic outlook changes.
Expert forecasts
The latest housing market predictions from some of the top industry groups believe home prices will increase next year.
Fannie Mae sees home prices increasing 5.8% in 2024 and 3.6% in 2025. It also predicts that the number of people buying a home will increase by 4.6% next year after ending 2024 down 0.9%. The Mortgage Bankers Association forecasts that home prices will have gone up 3.8% by the end of this year and 1.5% by the end of 2025. In 2026, the MBA thinks prices could rise another 1.5%.
The National Association of Realtors says existing home prices will end the year around $398,700 and that they'll increase to $405,000 by the end of 2025.
Economic indicators to watch
These forecasts could change if the economy shows signs of weakening. But recent data has remained strong, making that less likely.
In their latest Summary of Economic Projections, released in September, Federal Reserve officials predicted that the unemployment rate could peak at 4.4% in 2024 and 2025 before easing back down to a longer run rate of 4.2%.
If unemployment rises more than this, we could experience a downturn, which may hurt the housing market and cause prices to go down a bit. But even then, prices might not drop enough to make a big difference in affordability.
Another indicator of housing market stress is an increase in foreclosure activity. But in a recent report, real estate data firm ATTOM said that foreclosures were down 11% year over year in October.
Understanding housing market dynamics
Why are economists so sure that home prices won't crash?
"[There's] just simply not enough supply," Lawrence Yun, chief economist at the National Association of Realtors, says. "So the economics of supply and demand, if there's a shortage, prices simply cannot crash."
The US is between 2.3 million and 6.5 million units short of a healthy housing supply, according to Realtor.com. Even if something happened that caused a lot of homebuyers to drop out of the market, demand likely still couldn't drop low enough to push prices down significantly.
Current state of the housing market
While it's perhaps understandable that some hopeful buyers feel their only chance to become homeowners is for the market to crash, they might not realize that the last crash is part of how we got into this situation in the first place.
How the last housing market crash helped create today's conditions
In the mid-2000s, many lenders were offering mortgages to high-risk borrowers without asking for proper documentation. At the same time, home builders were rapidly building new homes to meet increasing demand.
"Home builders were producing right and left, so much home construction," Yun says. "It was one of the most active supply-producing situations. So we had an oversupply."
When the housing market crashed, leading to the Great Recession, it destroyed the home-building industry. Many companies went bankrupt, and a lot of builders permanently left for jobs in other industries.
In the years that followed the recession, the industry struggled to recover, and few homes were built as a result. Now, more than a decade after the end of the Great Recession, homebuyers are still feeling the effects of the last crash.
Demand from first-time and millennial homebuyers
So there's not enough supply, but where is the demand coming from? Even though homebuying demand has eased somewhat in response to higher mortgage rates, there are still a lot of buyers interested in purchasing a home — especially first-time homebuyers.
According to NAR, 32% of homebuyers who are buying this year are doing so for the first time. And millennials, many of whom have never owned a home before, have finally surpassed baby boomers as the largest demographic of homebuyers, making up 38% of the market.
As more first-time homebuyers come onto the market, it only exacerbates our supply issue. And Gen Z, another large generation, is now starting to look for homes, too. However, as baby boomers move into nursing homes or pass away, the homes they leave behind should help add to the housing supply in the future — a phenomenon dubbed the "silver tsunami." So we may soon get some relief thanks to the addition of that supply.
Home price trends
Home prices have increased this year. According to NAR, existing home prices started the year at $385,100 and increased to $413,000 by Q3. But they may decrease slightly in Q4 before rising again in 2025.
Mortgage rates and the housing market
In November, average 30-year mortgage rates rose to 6.56%, according to Zillow data. Rates are a bit lower compared to where they were a year ago, but they're still higher than what many homeowners and buyers are used to.
Because rates are expected to fall next year, many buyers are waiting to start the homebuying process.
Impact of the Fed
The Federal Reserve has lowered the federal funds rate twice this year, and it's expected to continue lowering rates at future meetings. As the Fed cuts rates and mortgage rates ease, homebuying demand is likely to increase, putting upward pressure on home prices.
Predicting a housing market crash
Housing market crashes typically happen when there's an imbalance of supply and demand. But there are a lot of things that can cause this imbalance, whichmakes crashes hard to predict.
How low demand can cause a housing market crash
A sudden drop in homebuying demand can lead to a housing market crash. This can happen if a lot of would-be buyers lose their jobs during a recession, and are no longer able to afford to buy a house. If no one is buying houses, then home values plummet.
Lower demand also typically occurs when mortgage rates are high. This alone often won't be enough to cause a crash in prices. But if supply is also relatively high, a moderate drop in demand could cause home prices to go down.
How an increase in supply can cause a housing market crash
Though it might be hard to envision inthe current market, it's possible to have an oversupply of homes. This can happen if builders construct too many homes in a given area, or if an economic downturn causes many owners to lose their homes to foreclosure. In this scenario, not only would a lot of new homes be released onto the market, but the economic conditions could also prevent other buyers from purchasing those homes.
Shifts in supply or demand don't always mean a crash is imminent. Prices can plateau or dip slightly without crashing.
What a housing market crash would mean for homebuyers and sellers
Housing market crash impact on buyers
Anything is possible, and nobody has a crystal ball to see for certain what will happen in the housing market in the coming months and years. If the marketwere to crash, would that make it easier to buy a home?
It's possible, but it depends on what caused the crash in the first place. If it's anything like the last crash, where many workers lost their jobs, taking advantage of lower home prices won't be possible for many homebuyers. And given the current supply conditions, it's highly unlikely that we'd see prices fall significantly without there being a larger economic fallout.
Housing market crash impact on sellers
In recent years, the housing market has been good for homeowners and sellers. Limited supply has boosted their home values and given them the upper hand in home sale negotiations. But a housing crash would likely shift some of that power to the buyers. This means sellers would need to be more open to offering concessions to buyers or lowering their prices.
A crash would also impact your home's value and potentially make it difficult to move if you end up underwater on your mortgage.
Preparing for a potential housing market crash
Right now, you probably don't need to be preparing for the housing market to crash.
But if you're wondering what you can do now to put yourself in a good spot if a crash were to occur sometime in the future, here are some ways you can prepare:
- Keep an emergency fund
- Don't buy more house than you can afford
- Get a fixed-rate mortgage, so you don't have to worry about your payment going up
- Increase your down payment so you have some equity in your home
How to buy a home in a challenging market
Instead of hoping for lower prices, here are some things you can do to achieve your homeownership dreams in 2024.
Expand your search
If you can't afford to buy in your current city, consider looking elsewhere. Talk to a local real estate agent to find out if you can find more affordability a few towns over. Many times, average home prices can differ quite a bit from one zip code to the next. Just be sure to also consider other factors before you move to a new area, such as your commute to work and whether you want to be in a certain school district.
If you live in a high-cost metro area, moving out of the city can make homeownership significantly more affordable.
"For those who have some flexibility to go further out into the suburbs, exurbs, or even smaller towns, the next county, there's better affordability," Yun says.
Wait for mortgage rates to fall
The one good spot of news for homebuyers is that mortgage rates are expected to go down in 2025. While Yun says we're unlikely to see a return to the historic lows borrowers enjoyed in 2020 and 2021, the latest forecasts suggest 30-year fixed rates could inch down throughout the next couple of years.
Lower mortgage rates mean more people will be able to afford to buy a home. As rates fall, you could potentially save hundreds of dollars per month on your mortgage payment.
Get as much help as you can
Mortgage lenders are increasingly offering incentives to entice prospective borrowers, and many of the best mortgage lenders for first-time buyers offer things like down payment assistance or interest-rate buydowns to help borrowers get into a home.
Make sure you're taking advantage of all the assistance available to you. Look for no down payment mortgages and down payment grants offered by lenders, as well as down payment assistance offered by your state or municipality.
Housing market crash FAQs
What are the key signs of an impending housing market crash?
If homebuying demand suddenly drops or there's an oversupply of homes, that could cause a housing market crash. Increasing mortgage rates, a ramping up of new home production, or an economic downturn can lead to housing market crashes. But these things don't guarantee a crash.
How often do housing market crashes occur?
Some experts say that the real estate market runs in 18-year cycles, meaning you could expect a crash or recession around once every two decades or so. But this isn't a hard and fast rule, and it's better to predict the likelihood of a crash based on the factors influencing a given market.
Can government intervention prevent a housing market crash?
The government can enact policies to help avoid a housing market crash, but it isn't always successful in doing so. Sometimes it happens too fast for the government to react, or policy makers were trying to balance competing interests.
Is it wise to invest in real estate if a market crash is predicted?
Even if a crash is predicted, it doesn't mean it's guaranteed to happen. If you're just looking to buy a home, you should do what makes the most sense for your household's needs and finances, rather than viewing the home as an investment.
What should I do if I own a home and am worried about a market crash?
If you're worried about a market crash, you can talk to a financial advisor about protecting your finances and assets, including your home.