Housing market analyst Melody Wright says that all the signs are pointing to a housing market crash that could rival the Great Recession of 2008.
‘I see it happening over several years with the potential to deteriorate faster than in the last cycle,' she told Newsweek. ‘For instance, prices did not bottom until 2012 during the last cycle. I believe we could get started in earnest next year on the price decline and see a rather large drop historically speaking but still think it could take several years to bottom.'
You shouldn't trust the word of one lone "expert," but the downturn has already begun.
In November, a Zillow report showed that the average home value in the U.S. is already down 9.7% from the peak, but home values are still a whopping 67% higher than they were pre-pandemic.
Zillow tried to keep investors calm by calling the trend a "correction," not a crash. A market "correction" just means a drop of between 10%-20%, whereas a crash has to drop over 30%.
What can be said is that the median income in the U.S. has only increased by 18%, mortgage rates have doubled, and the only houses that are really selling are in the upper-income categories, which is keeping the average-housing price artificially inflated.
‘You have this bifurcated housing market, but the majority of folks transacting are in these upper tiers, so your median [home price] is going to be higher,' Wright said.
‘However, what I've been seeing over the last three months, and this is — I get into the dirty dirty details — underneath the covers, that $100,000-$250,000 sales price, we are starting to see incremental increases in sales in that category,' she added.
‘And so as it continues, it will start to drag the median down. It's happening already and that's where we're seeing the deceleration,' Wright said, adding that we are going to end the year with ‘flat' home price growth.
So why is it going to be worse than 2008?
Because in 2008, as home prices fell, investors jumped in and bought up houses like crazy; they were a great value for the money.
This time, over 30% of single-family homes are owned by investors (of all sizes) who thought they were going to make some money on the pandemic bubble.
Since they bought at the high end of the market, other investors aren't going to swoop in to save them at a loss to themselves.
These houses are also a greater risk for homebuyers.
You see, investors pay cash for their properties, so when they abandon them, there's no bank to step in and take over maintenance concerns, like foreclosures.
‘There's nobody that's going to be cutting the grass, there's nobody that's going to be winterizing that home, taking care of the mold problem,' [Wright] added.
‘And so I think we could see this kind of devolve into chaos a lot faster than we did last time as many investors abandon these properties.'
In short, those houses are going to be worth much less than the investors paid for them and much harder to sell.
Wright says that historically, a healthy housing market median tracks with the median income (usually homes are 2-3 times median salary).
The median income in the U.S. right now is $83,730, so a healthy housing market median would be around $251,190. The peak housing median was $442,600, however.
The real question: When is the crash going to actually happen?
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