Since the massive housing bubble burst of 2008, both economists and real estate professionals have been on edge, waiting for the next crisis to hit. It’s been over a decade since the last hiccup, so we want to know: are we headed for another housing crisis? Experts believe that’s the case – and it may happen sooner than you think.
When Will We See Another Housing Crisis?
The housing market has continued to rebound over the past decade. As the economy continues to grow following the Great Recession, so have housing values. This year, housing values are expected to rise by more than 5%. Overall, those seem like impressive gains. But as Forbes Magazine points out, it’s not so remarkable when you consider our booming economy and job growth. With more people working, there should be a marked increase in the number of American homeowners.
Why aren’t home values keeping up with job growth? Experts say there are a variety of factors at work. For one, many Americans are working, but wages aren’t keeping up with the increase in home prices or the cost of living. It’s harder to save enough money for a down payment. Secondly, consumers are leery about foreign policy, and economic uncertainty. In fact, consumer confidence recently reached a 21-month low, likely the result of ongoing trade wars with China.
Even though the economy remains strong, nearly half of the over 100 economic experts surveyed in a recent Zillow poll predicted the next housing crisis will hit sometime in 2020. Fourteen percent of those surveyed believe we won’t see a housing crisis until 2021, and 9% think it won’t happen until 2022. Of the experts Zillow polled, only 1% of them believed we could delay another housing correction until after 2022.
What’s Leading to Another Housing Crisis?
American housing market health is a complicated issue. Unlike the 2008 financial crisis that led to the Great Recession, experts do not think the housing market will be central to another collapse. Instead, home values will be affected by outside economic factors like trade policy, interest rate hikes, and a myriad of other issues.
By far, the respondents in the Zillow survey expect monetary policy will be the reason the housing market sees a downturn. If the Federal Reserve raises interest rates too much or too quickly, it will make borrowing too expensive for new homeowners, and the market will stall.
The experts surveyed also mentioned the U.S.’s ongoing trade war with China as another potential cause for concern. New tariffs have led to uncertain trade futures, rising prices, and general unease about the future of our economy. The trade war has unsettled the stock market, and investors are likely to react accordingly. Higher tariffs on Chinese imports will mean higher prices for the average American consumer, leading to tighter budgets and an unwillingness to purchase a home.
Stock Market Correction
The stock market has seen historic gains over the past five or six years, but experts say that’s all about to change. We’ve seen wide swings in the stock market over the past 12 months, and the nation’s leading financial experts say inflation, trade wars, and a widening gap between the wealthy and middle class are bound to end in a stock market correction. While many don’t believe it will be as severe as the stock market crash of 2008, we’re still likely to see a significant drop within 18 months.
Those surveyed in the Zillow poll cited geopolitical events as the number one concern to our economy. It seems those sentiments have calmed a bit, but tensions with North Korea, China, and Russia – as well as strained relations with our allies – are causing concern.
The experts in the Zillow survey also pointed to higher-than-expected inflation as a possible cause of the next housing market crisis.
What Can Homeowners and Investors Do?
While these statistics might seem like cause for alarm, there’s a silver lining. Now might be the perfect time to buy a home. Housing inventory is up, prices are down, and interest rates are still at historic lows. Many housing markets are still booming and will likely continue to grow even during an economic downturn. Low-interest rates can’t last forever; now is the time to invest in real estate.