The next housing market crash forecasts are a mirage

Concerns about the housing market have been around since the last Global Financial Crisis. With interest rates rising, there have been worries that the residential market will tumble this year as demand wanes and as inflation remains at an elevated level. In this next housing market forecast, I will assess whether the industry will correct this year.

US economy is relatively stable

The Federal Reserve has been extremely hawkish in the past few months. In the past 16 months, the Fed has hiked rates from 0% to more than 5%, the highest point in more than a decade. It is the most aggressive period that the Fed has been in.

As a result, bond yields have jumped from near zero to over 3%. The 10-year bond yield has jumped to 3.62% while the 30-year and 2-year have moved to 3.8% and 4.4%, respectively. The average 30-year mortgage rate has jumped to more than 6.5%.

Inflation is ‘eating’ a substantial amount of household savings. Data shows that the US personal savings rate has moved to about 4.6%, lower than the historical average of about 8.9%. At the peak of the pandemic, the rate jumped to over 33%. 

Household savings are an important part of the housing market. People with higher savings tend to invest more in housing.

At the same time, the yield curve is extremely inverted, pointing to a potential recession. According to Fred, the curve stands at -0.77%, which is better than the year-to-date low of -0.97%. Therefore, there is a likelihood that the US will go through a recession in the next few months.

In addition to the improving yield curve, other pockets of the economy are doing well. For example, the unemployment rate stands at 3.5% while wages are growing at over 4%. 

Housing market crash won’t happen

The term housing market crash sends memories of the 2008/9 crisis when prices plummeted and defaults surged. This crash was mostly caused by subprime lending, where banks extended credit to many uncreditworthy individuals. 

Today, things are extremely different. For one, big banks that dominated the industry like Wells Fargo and JP Morgan have largely pulled out of the industry. 

At the same time, as shown below, the delinquency rate on all commercial loans has crashed to the lowest level since records began in 1985. This means that people are paying their loans on time. Mortgage delinquency rate has also tumbled.

Meanwhile, house prices have started rising after falling sharply last year. Data published on Tuesday revealed that house prices have jumped in the past two months straight as demand rebounds and supply remains under pressure.

Other recent housing numbers like new, existing, and pending home sales have held quite well while building permits and housing starts have been rising. 

Therefore, I believe that there will be no housing market crash in the US in 2023 since things are doing modestly well. 

Another positive sign of the housing market is the performance of real estate stocks. Most of them have rebounded from their lowest levels in 2022. Lennar stock price has soared by 55% from the lowest point last year. 

Similarly, Toll Brothers stock price has surged by over 74% from 2022 lows while D.R Horton and Pulte Group have surged by over 70%. This is a sign that the industry is doing well, helped by the favourable demand and supply dynamics.

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