Despite Historic Low Affordability, Experts Say a Housing Crash Is Unlikely — Here's Why

Home prices continue to soar, defying the traditional link to rising mortgage rates.

In the past, higher rates meant lower prices to keep homes affordable, but today, many homeowners are locked into low mortgage rates of below 5% and are reluctant to sell, keeping the supply of houses low and prices inflated.

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Several factors could soon chip away at the frozen market. Rising maintenance costs resulting from climate change, increasing property taxes based on higher valuations and an aging population facing physical limitations in their large homes could spur movement. Families needing more space and inevitable life events like death, divorce and debt will continue to generate homes for sale.

Although many potential sellers have been sitting on the fence, a well-priced stock market combined with national median home sale prices in the mid-$400,000 range and less than 2½ months of inventory could make now the right time to list a house.

Selling might make sense, with typical single-family home maintenance costs rising by nearly 26% between March 2020 and March 2024 to more than $18,000 per year. Although the median sales price rose 40.1% during the same time frame, the maintenance cost increased to about $1,510 per month, according to Bankrate.

"You're not going to see house prices decline," Rick Arvielo, head of mortgage firm New American Funding, told Bankrate. "There's just not enough inventory."

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A housing market crash is characterized by a sudden and severe drop in home values, typically exceeding 20% from peak to trough. The 2008 financial crisis is a prime example. Foreclosures surged as many homeowners underwater on their mortgages were forced to sell. At the same time, potential buyers, fearing even steeper price declines, stayed on the sidelines. The vicious cycle of foreclosures and declining demand only worsened the housing market collapse.

However, today, there are still far more buyers than sellers, meaning that a significant decline in housing prices will not occur.

"You've got an entire generation of pent-up demand," Re/Max Founder Dave Liniger told Bankrate. "We're in this fascinating position of tremendous demand and too little inventory. When interest rates do start to come down, it'll be another boom-and-bust cycle."

Although the Great Recession is in the rearview mirror, homebuilders still remember the sting and have been cautious about how much they're building, resulting in a continued shortage of homes for sale.

"We simply don't have enough inventory," National Association of Realtors Chief Economist Lawrence Yun told Bankrate. "Will some markets see a price decline? Yes. [But] with the supply not being there, the repeat of a 30% price decline is highly, highly unlikely."

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