Will we see a housing market crash in 2020?

[Snydley]

I was in Florida last week and went to see model home in new development- it's my dream vacation (2nd) home. The real estate agent asked me when we were thinking of buying and I said in maybe within a few years or sooner if the housing market crashes. Now with the stock market on a major slide, could a housing crash follow? What would the timing be if this happens, do you think? Is anyone else thinking this might be a good year to buy real estate? Also, how much (% wise) do you think home values could shrink?

[kork13]

I don't foresee any major drop in housing values, at least on a national level. Everyone has to live somewhere.

Stock market drops can cause bond/treasury interest rates to rise, leading to higher mortgage rates, leading to a reduction in home purchases, leading to slower growth in home values. I'll also accept that the amorphous factor of "consumer confidence" can have weird effects on stock, bond, RE, and every other market out there.

However, there's nothing I'm aware of that would inherently lead to house prices to fall dramatically. If anything, home values could be driven up by demand. Real estate is an alternative investment to stocks, so if stocks are unappealing, investors may throw money into real estate instead. Additionally, depending on the specifics (I'm not aware of them), the supply chain interruptions caused by ongoing & future efforts to contain a viral outbreak could lead to building supply shortages, slowing down the construction industry. All of this could lead to higher prices due to a shortage of homes in the market.

I'm no expert, just my observations.... Bottom line, though: I wouldn't count on a sudden (or even moderate) drop in home values.

[Like2Plan]

It is not impossible to see the market go down, but it was a different mechanism at work in the 2008 housing crash. It was a house of cards built on basically worthless mortgages (a junk bond mixture) and overvalued property which started the ball rolling. Here, I think there are a lot of unknowns on how the coronavirus will impact the market. It may or may not cause major disruptions/supply chain interruptions and so on. So, I think the market has reacted to that-how to price the market without knowing certain things.

I think cheap money will still be available for mortgages, so that would be a factor against the market going down. Now, if you had prolonged widespread unemployment (which would represent a huge change to the current situation)--that would be a factor in favor of the housing market going down.

Only time will tell.

[Snydley]

thanks for your thoughts. I wonder if vacation homes will drop in price first because they are not necessary purchases...we'll see.

[TexasHusker]

In Gatlinburg TN, we have been seeing vacation home prices go parabolic. Of course, the vast majority of these are vacation rentals purchased for investment purposes. Short term rentals are the new investment fad.

But there will be a big-time correction. Nothing goes straight up. I’m not a buyer of anything at the moment, RE or otherwise. Prices are ridiculously high. Any property sub $400K hitting the market is bought within 24 hours.

A part of me would love to cash in my chips and sell my vacation rentals for big time profit. The trouble with doing that is I couldn’t readily replace the income - which is about $100K a year to me after expenses.

I’m stuck, but in a good way.

[disneysteve]

I also don't think there's a crash coming, but there might be a slowdown coming. If the stock markets continues to slide, that impacts the money people have to spend on a house. It also affects consumer confidence. People are less likely to take on a big mortgage when they're watching their retirement account balances plummet.

[Jluke]

How often is there a housing crash?

i tried to search but didn’t have much luck other than the obvious 2006 (peak) and 2008 crash.

[amarowsky]

Maybe a small change to prices (small reduction) may be possible if some people were over leveraged and hoping their security accounts could bail them out.

But even since the Great Recession + House meltdown down of a decade ago.... Seems like too many people are “expecting” the same drop in house prices. SO you have legions of enthusiastic real estate investors waiting w/ cash to snag up some of these houses, *Note - (This is merely my speculation). I think any great deals will be snagged up super fast, with houses as investments being in higher demand these days. This seems to be accurate in Michigan (where I have done all of my prospecting for R.E. Investments)

[TexasHusker]

How often is there a housing crash?

i tried to search but didn’t have much luck other than the obvious 2006 (peak) and 2008 crash.

The crash was due to easy lending which was forced by Congress during the Clinton administration. Any time the government fetters with otherwise free markets, there is eventually a “day of reckoning” which can drag out for years. Expansions and contractions are a part of any free market economy. Government tampering enhances both.


The next day of reckoning will occur as a result of the government’s constant meddling of interest rates - buying back the very treasuries it just issued. I consider that fraud, not dissimilar to money laundering and even check-kiting. This will be a whopper event when it eventually unravels. Massive spiraling-upward student loan debt, a kissing cousin to the home lending disaster, will also weigh in on our economy sooner rather than later.

Government tampering with free markets never works long term. Like cotton candy, it tastes good at the moment, but there’s really nothing left of substance.

[Snydley]

I thought the last housing market crash was from the predatory lending practices of the banks?

[TexasHusker]

I thought the last housing market crash was from the predatory lending practices of the banks?

That’s sure what Uncle Sam said!

[disneysteve]

The crash was due to easy lending

I thought the last housing market crash was from the predatory lending practices of the banks?

Predatory lending is part of the easy lending TH referred to. Banks were issuing mortgages for 5 or 6 times income. They were issuing interest-only loans for which the borrower couldn't possibly afford the payment once the principal payments started. They were issuing no down payment loans so borrowers were borrowing 100% of the purchase price. There was a lot of sub-prime lending occurring to people with awful credit and not nearly enough income to support the debt.

And people were obviously at fault, too, because they were using their equity as personal ATMs, sucking out every penny they could. Then they were screwed as soon as values started to fall and they were upside down. The same for the people who borrowed 100% of the price or only put down 3% or 5%.

Then the banks started taking these high risk loans, chopping them into pieces, and repackaging them as investments that looked far safer and higher quality than they actually were.

It was quite a mess and finally collapsed.

[corn18]

I don't have a clue, but I have the heebie jeebies about our move back to OH. When we moved here to TX from OH last year, I was fine with carrying two mortgages and taking our time. It was an easy move because I was in TX in an apartment, we bought the TX house and my wife stayed in OH until she was ready to move which was Jan 2019. We bought the TX house in Dec 2018 and sold the OH home in May 2019. I was fine with that, because we missed the hot market anyway (well, as hot as the Cincinnati markets gets, which is more tepid than hot).

This one feels different. We are building a house in OH right now and it should be done by the end of June. We should be able to move in July and then put the TX house on the market. The Dallas market is very high demand and low inventory right now. In June, it will be high demand with more inventory. So between now and May is the time to sell. And I just have this nagging gut feeling that we should sell the TX house ASAP. No clue why. I told my wife about it and she thinks I am nuts.

The issue is it will cost us $5k to rent an apartment in OH while we wait for the house to be finished. And our stuff will have to go in storage if we close on the TX house before the OH house is ready.

From a money standpoint, it should be better to wait. And then I get the heebie jeebies again. To me, I would much rather have this house sold and be living in an apartment in OH waiting for our new house. Not as simple, but a lot less financial risk.

Looking for non-emotional feedback.

[kork13]

This one feels different. We are building a house in OH right now and it should be done by the end of June. We should be able to move in July and then put the TX house on the market. The Dallas market is very high demand and low inventory right now. In June, it will be high demand with more inventory. So between now and May is the time to sell. And I just have this nagging gut feeling that we should sell the TX house ASAP. No clue why. I told my wife about it and she thinks I am nuts.

From a money standpoint, it should be better to wait. And then I get the heebie jeebies again. To me, I would much rather have this house sold and be living in an apartment in OH waiting for our new house. Not as simple, but a lot less financial risk.

Looking for non-emotional feedback.

Non-emotional? Easy. It's known fact that most American markets peak in activity during the spring timeframe. So it certainly does make sense to get your house on the market sooner than later. That said, look at the fundamentals -- Dallas is one of TX's most vibrant markets for RE, tech, and many other industries. Growth has been strong and consistent for decades, even through the 2008 meltdown (while yes, it certainly crunched with the rest of the country). I don't think you need to panic, but I'd recommend getting it on the market by the late April-May timeframe. Assume that it sells in 1-2 weeks (or even takes a month), you'll have another 3-4 weeks or so in the house while you wait for closing. By then, it'll be sometime in early June, you can move out, meander back to Ohio, maybe stay in a short-term rental (AirBnB-style) for a few weeks, then as soon as your new build is ready, move in.

Perhaps to best allay your fears...consider the "worst case" scenario. You get on the market a bit late, and there's a higher available inventory. Your house might sit on the market a little longer, and/or you might get a slightly lower sale price. That's really about the worst that'll happen -- disappointing, sure, but we both know that a $10k-$20k hit from this house selling low/slow won't bankrupt you. There's nothing in the Dallas market that's going to suddenly implode and crash the value of your house there. So no worries!

I'm in a similar position -- moving from Alaska to Idaho in late April. We're planning to go on the market in mid-late March, and see what happens. No reason to panic, though it'd be nice to have it sell within a few weeks. Worst case for me is it sits for 2-3 months, which is about the max that reasonably priced homes in my neighborhood ever sit during the spring/summer (typically, 1-4 weeks). It'd cost us maybe $10k on our $425k home. Unfortunate, but not crushing by any means.

[~bs]

it will be somewhat dependent on interest rates. And with interest rates at all time lows and likely to head lower if the corona concerns persist, the housing market will likely be propped up unless there's other issues going on with the market. Note that the central banks around the world are going to feel pressure to cut interest rates to prop up their economies. That will also put pressure on the mortgage rates as well.