What Can We Expect From Next Housing Crash? Based on 2009 One?

What Can We Expect From Next Housing Crash? Based on 2009 One?
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I think it’s safe to say the housing bubble will be crashing down in the near future. What can we expect, based on the previous bubble burst? What indicators can we see that it’s coming?

Real Estate (RE) can be geographically specific and I only care about buying a house in the location I want to buy it, so I’m more interested in the local market, although I imagine it will trend to some extent nationwide.

Interest rates have gone from 3.3% to 4.6% for 30-year mortgages and are only going higher. Additionally, since we’ve had a huge boom in recent years due to the historically low interest rates, it spurred homebuilders and luxury condo builders to start overbuilding. Those structures will be ready soon, increasing supply. That’s going to push downward pressure on prices.

What should we start looking for? Number of days on the market seems like a good indicator. Perhaps also finding 20 sample houses in the zipcode I’m interested in and tracking their weekly price movements on Zillow… did they sell? how many days on the market? how much are the sellers dropping the price?

Perhaps I could also look for number of foreclosures, but I’m not sure how to get that number easily. If I just use Zillow, the list could be incomplete and I won’t know by how much it’s incomplete (maybe this month it shows 80% of all foreclosures but next month there’s double the number of foreclosures but Zillow only lists 30% of them, so the total number looks like it trended down, but really they just weren’t listed on Zillow).

Do people still have ARMs? If so, does that mean about 5 years after the start of the most recent bubble, we’ll see a huge uptick in foreclosures as those sweet 3.3% rates reset to 6% in the year 2020?

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Perhaps one way to spot “market bottom” is when government steps in with tax incentives for first time home buyers. For someone like myself who can pay cash in full for a modest home in a cheap area ($250k or so), that might be the buy signal because tax incentives will increase demand, putting upward pressure on prices, but it will take time for people to start buying houses. If I’m already prepared to pull the trigger, I should be able to get in before everyone else starts their home buying and pushing up prices.

Homebuilder stocks are down over 5% just this week, and general REITs and long bonds have also been getting a beating. Maybe you’re supposed to short those until you can afford an increasingly inexpensive house? :slight_smile:

In my area (North Florida), I am seeing houses on the market much longer and more price drops and open houses. Houses are not moving like they used to.

However, I’m not sure if we will see a “crash” like we did in 2009 - I believe it’s more of a forthcoming correction. Prices will continue to fall due to larger supply and higher interest rates, but I believe we will not see the categorical crash many years ago.

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Here is market data :
https://www.realtor.com/research/data/

You can look for your ZiP in the historical data per ZIP code here :
https://s3-us-west-2.amazonaws.com/econresearch/Reports/Core/RDC_InventoryCoreMetrics_Zip_Hist.csv

That will give you a bunch of metrics to track easily.

I can’t agree with your thesis. At least at a national level. The market will slow down or stagnate or possibly dip a little but to say that “the housing bubble” will be “crashing”…no, can’t agree there. I’d call the run up in the past 6 years a “recovery” not a bubble. Nationally prices are up around 15% in the past decade, thats hardly a bubble. IN the housing market “crashes” are not the norm. Housing generally tracks inflation over the long term. Housing is illiquid and of inherit value and need. Not to say it can’t happen but its not at all “safe to say” it will happen.

But our disagreement here may not really matter…

RE is absolutely geographically specific. And individually thats what matters to any of us when considering buying a home for ourselves. AS you say, you only care about buying in your location in your market so you’re only interested in your local market.

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I don’t see a bubble like in '07 but prices are high and interest rates are higher than a few years ago and wages have not kept pace.
I bought a condo in the far north SF Bay area for $215K in 2013 at 3.3% 30-year fixed. I listed it at $359K and a 30-year fixed is 4.9%. There is no way wages have been keeping up with this.

Doesn’t the Schiller Price index supposed to account for inflation compared to housing prices, and isn’t it extremely away from historical standards at the moment?

A few housing crash indicators would Home prices appreciating at a rate faster than local incomes and price to rent ratios at a level so high that it makes no sense to buy a house as renting is a superior deal.

When the price to rent ratio gets out of wack you have speculators buying assuming appreciation rather than for the cash flow of the property.

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I’m with @jerosen and @Danman. There is no “crash” on the horizon. A small dip and then a leveling out is the most we’ll see. A lot of places may not even see a dip, just a leveling out. The best indicator of a larger dip would be seeing 30, 60, 90-day late trends tick up. After 2007, everyone is watching those numbers like a hawk.

My guess is that the next recession will come from a general stock market drop, which won’t be brought upon by real estate like in 2007. That recession will be similar to pre-2007 recessions in which the stock drop will be followed by layoffs, which will result in an increase in foreclosures only for those folks that can’t find work. The rest of the homeowning population will still be able to pay their bills.

I still think the student debt behemoth is a big question mark as well. Our country could slowly move away from taking on $60k+ in debt for poor-value degrees, or something could happen very quickly that would cause a shock to the system. A shock might be less likely because of the fact that you can’t discharge that debt like you can other debt. Hard to say, but something to keep an eye on.

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I’m not smart enough to have any real idea, but I tend to agree. History doesn’t actually repeat itself, but it does rhyme. There will almost certainly be some sort of crash, but the likelihood that it’s due to housing prices seems pretty low.

If you look at the mortgage default rates, there’s no indicator yet of anything going on right now. Experian First Mortgage Default Index

I think there is going to be a leveling off in the near future for most markets, but a crash would only be likely if other factors converge to make demand drop more dramatically than just from rising interest rates.

But economy was doing great in 2007 too… I just don’t think we’re in as bad a shape now as we were then based on the limitations and scrutiny on mortgage lending. So I’d expect any correction in 2019 or 2020 to be more of a dip than a major crash, outside of specific overheated markets.

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Agreed, there’s little indication that housing price is an issue right now. What worries me right now is the constant cyber-warfare with Russia and low-level mutual provocation in South-China Sea. If either of these spirals out of control then all bets are off.

I’ll give my outlook. We are currently in the market here on the Eastside of Seattle. Currently we own a townhouse that I bought back in 2009 at the depths of the previous bubble burst. We are looking to upgrade to a single-family home after having miserable neighbors move in next door this past spring.

Prices are definitely dropping here. They were overinflated to begin with, given the foreign investment from the Chinese that has now dried up and the ridiculous number of tech jobs flooding the market.

Not all sellers seem to have gotten the message yet on the declining market. Many are letting their homes sit on the market for 50, 60, 70 days, at overinflated prices. When we put our townhome on the market, I am going to be fairly aggressive price-wise and given what I’ve seen thus far, it should move quickly. Well priced, well maintained properties are still moving quickly. It’s the undesirable properties and the people who shoot for the moon price-wise that are having issues, at least here anyway.

I think this is a good time to buy for us, not only because of the annoying neighbor, but because I think this is going to be a smaller correction than 2007/2008 and I think the area is still desirable. There are very few short sales despite the price drops and slowness in the market. This isn’t a one-company town anymore like it was when Boeing ruled the roost so I think the market will be more resilient in the long term.

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Based on the 2009 crash, I expect to sit on a small pile of cash while looking for a property, and then not buy anything until prices run up again. Just my damn luck.

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RE price tend to be “sticky”. Back in 2009, price didn’t really start to drop till later 2009-2010. If you are looking around Seattle, I would set an alert and only look at new listing or price change.

This plus the large number of foreclosures and short sales. It depended on when your market got hit and people stopped paying their mortgages. Foreclosures don’t happen overnight. Plus the interest free loan from the IRS in 2008 and the credit in 2009. It’s not that prices didn’t drop until 2010, they just continued to drop into 2010 mainly because of more foreclosures and the end to the IRS credit. I bought in late 2009 because of the credit and because I figured there weren’t going to be that many more foreclosure options into 2010. Glad I got the credit, but there were definitely still plenty of foreclosures into 2011.

Speaking of crush. Dow is having a rough day.

I have been observing the huge discrepency between wage growth and housing costs as well and thought this can’t continue and needs an adjustment (greater Portland area). I was actually hoping for a future crash to take advantage of a bubble burst to buy. Looking at comparisons of 2006 market conditions I also agree that a ‘crash’ is not in the future. If anything, a slowdown or slight correction is in order, but a crash in housing? No.

We have had a highly heated market in our NW coast area due in part to new money coming in. California and Asian money coming in has caused a big uptick in housing prices. I don’t see this waning, despite slow wage increase. I do expect it to cool down but not crash (my home appreciation in my small but highly growing town has gone up nearly 40% over 3 years). That’s huge.

If anything, I attribute it to a re-leveling back to base price over the prior 10 year decrease and new demand of the fact soooo many more people are looking for housing but are finding it hard to afford it. Demand is up and supply is just minimal (mainly 4/3 higher end houses are being built and sold in my area).

As to a crash, I don’t think it will happen in my area. People are still aware and leery of the prior crash, though to buy a house now takes more of your cost to income ratio, but banks are not lending money like pre-2006 crash and ARMs are not prevalent. The conditions are just not there to see a crash like in 2006.

Though a stock market crash in the next 2-4 years? We’ll have to wait and see…I’ll have to find the link but it sounds like some foreign governments have allowed the purchase of huge money coming into stocks where local interest rates are low. If this becomes a global effect, it could be the next huge boom leading to the next big crash, where currently a lot of money held in cash is waiting to enter the market…

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Yes, there’s the slow wage growth. However, for a few selected area like Seattle, Bay-area, etc… some of the tech workers are not constrained by wage growth. In fact, they are doing quite well.

If you look inland just a bit, there’s significant differential. For that reason, I’m increasing convinced that I’ll not retired here on the coast. Not just the living cost but the traffic, etc…