Is there a 2021 housing bubble? I hear this question almost every day. My short answer is no. For the long answer, please read on. In the early 2000s, unregulated loans coupled with low interest
Is the Housing Market Going to Crash in 2021?
Dated: May 22 2021
- Is the Housing Market Going to Crash in 2021?
By Mia Taylor
May 10, 2021
The housing market is red-hot right now, but if you're waiting for a massive market
correction, don't count on it. Real estate industry experts weigh in with predictions for
home buying and selling trends.
It's hardly a secret that real estate prices across the country have been
skyrocketing. Recent data from Redfin, a real estate brokerage, shows that median
home prices are up 20% year-over-year. At the same time, many properties are under
contract for purchase within a mere one to two weeks of hitting the market and it's not
unusual for prospective buyers to offer 10% or even 20% over the asking price. In
fact, Redfin reports that 46% of homes sold for more than their list price. As if that's
not enough, many buyers are paying cash for homes. Yes, cash. You read that right.
CREDIT: SAUL LOEB/AFP/GETTY IMAGES
"We are in a record-breaking housing market with asking prices at an all-time high
($357,200), median sale prices at an all-time high ($347,500), the share of homes
selling over list price at an all-time high (46%), and homes selling faster than ever
before: 58% under contract within two weeks of listing and 46% within one week of
listing," says Redfin Chief Economist Daryl Fairweather. "Ask just about any real
estate agent, and they'll tell you they've never seen a market this hot."
All of which has left many watchers and potential buyers scratching their heads and
wondering if we're due for a market crash similar to the housing market burst that
brought on the Great Recession in 2007. The short answer to that question? No, a
similar crash is not likely. And there are many reasons for that.
Here's a closer look at some of the most obvious factors contributing to widespread
confidence that there will be no real estate market crash in 2021 (or anytime soon), as
well as insight into what real estate and industry experts do see happening in the
market over the coming months—and what it all means for potential buyers.
Factors Contributing to the Overheated Housing
First, it's important to understand that there are numerous elements driving the current
housing market and they differ from what was taking place before the Great
"Those of us who experienced the housing crash really don't want to go back to the
days of underwater sellers and houses sitting on the market for months at a time
without a single offer. The good news is that this isn't 2008 and 2021 has a few things
going for it that the sub-prime market could only dream about back when 'short sale'
became a household word," explains Debra Remington, managing broker for Texasbased
Remington Team Realty.
1. Lack of Inventory
One of the biggest contributors to the current red-hot market and sky-high prices is a
dearth of inventory. This is an explanation you'll hear from experts far and wide.
The shortage of inventory is caused by a few factors, including owners not wanting
strangers (potential buyers) traipsing through their living quarters amid a global
pandemic, thus far fewer homes being put on the market for sale.
The second issue is the pace of new construction, which has been slower than
normal. Years of sluggish new construction in the United States has finally caught up,
and many builders went under during the Great Recession.
"Not enough people are listing their homes for sale, and new construction isn't
keeping pace with demand," says Fairweather. "America built fewer homes in the
2010s compared to any decade going back to the 1960s."
In other words, one of the primary drivers behind the current overheated housing
market is very different than what set the stage for the 2007 crash. Today's boom
is not due to loose lending practices flooding the market with unqualified buyers.
"What caused the market to crash was related to real estate and the lending practices
that were happening. People were buying homes that shouldn't have been buying
homes," says Dave Nations, founder of The Nations Network. "They couldn't actually
afford the house they were buying but the loan product allowed them to at least get in
the house short-term."
Experts predict that the current record low inventory will keep demand at record
levels. But in the run-up to the Great Recession, the market was characterized
by limited demand and too much inventory, says Remington.
2. Historic Low Interest Rates
Historic low interest rates are also contributing to current conditions, encouraging a
steady stream of buyers to enter the market. The Federal Reserve repeatedly lowered
interest rates amid the economic downturn caused by the COVID-19 pandemic. And it
doesn't appear that those rock-bottom rates will disappear anytime soon, yet another
reason buyer demand is likely to remain strong and thus no market crash.
"The Federal Reserve has no immediate plans to change interest rate strategy. If they
stay low, buyers will continue to purchase as even if they are paying a premium, they
are locking in really great rates for the next 30 years," says San Francisco-based
realtor Julie Upton.
3. Millennial Buyers Entering the Market
Millennials are also entering the market like never before, which is playing a role in
market conditions. According to the 2021 NAR Buyer and Seller Report, the median
age of first-time homebuyers is now 33, which is coincidentally also the average age
Millennials turn this year.
"Millennials buying homes have already significantly impacted the market," says
Grace Keister of California-based First Team Real Estate. "At First Team, we've seen
a big uptick in Millennial clients. I've personally referred two friends in the last year
to buyers' agents; [I] know about two other friends who are casually searching, and
another couple who just purchased after six months of searching. We also had a new
agent who closed 15 transactions in her first year, all buyers that she met through her
4. Lending Practices Tightened
Perhaps one of the most meaningful indicators that a real estate market crash is
unlikely in 2021 can be found in today's lending environment, which is far stricter
than it was prior to 2007. As Upton likes to say, the days of NINJA loans (no income,
no job, no assets) are long gone.
"These risky loans were common prior to the market crash," explains Upton. "These
days, lenders are very strict when qualifying buyers, and changes to appraisal laws
have also tightened up the appraisal practices. Taken together, there are fewer risky
mortgages in the financial system."
Why a 2021 Market Crash is Unlikely
Market crashes generally take place when there's a serious breakdown somewhere in
the system. But as outlined by so many experts, that's not currently a problem.
"Absent a catastrophe in the financial markets or in the political arena, we fully expect
demand for housing to remain strong," says Michael Shapot, a New York based real
estate broker with The Shapot Team.
Upton supports Shapot's assessment. "While anything can happen that might impact
the housing market, there are no key indicators right now to suggest that there will be
a crash in 2021," she says.
Bankrate Chief Financial Analyst Greg McBride says that while the recent pace of
home price appreciation isn't sustainable over the long-run, that doesn't mean prices
are at risk of some sort of sharp drop or correction. It would likely take a return to the
questionable lending practices of the early 2000s to trigger such a collapse.
"If lending standards loosen and we go back to the wild, wild west days of 2004 to
2006, then that is a whole different animal," McBride explains. "If we start to see
prices being bid up by the artificial buying power of loose lending standards, that's
when we worry about a crash."
What Is Likely to Happen with the Housing
As the vaccine rate of Americans continues to increase and more homeowners feel
comfortable listing properties and having strangers walk through their homes, market
conditions will likely become more balanced. There will be more supply and prices
should adjust somewhat.
"The gradual increase in inventory will begin to slowly alleviate the demand created
by the inventory shortage," says Colby Hager of Texas-based Capstone Homebuyers.
"This rather gradual return to normal will create a larger pool of options for buyers
which will lead to more days on market for houses. The bidding wars seen today that
are a big factor of price increases will begin to die out because buyers will have more
housing options to choose from and there will be a drop in competition between
buyers for any one house."
Indeed, Zillow data supports the projections of Hager and other industry
professionals; while the early weeks of 2021 were marked by a scarcity of new home
listings as sellers stayed on the sidelines in the face of an uptick in COVID-19 cases,
data indicates sellers are starting to come back. New listings nationwide rose by 30%
in the four weeks between late February and late March.
What Does It All Mean?
So what do all of these insights and predictions add up to? Is it good news for
homebuyers? In many ways, that depends on your buying timeline.
"Homebuyers who have the ability to wait for the bidding wars to disappear, prices to
stagnate, and listings to stay on the market longer will get more house for their
dollar," says Hager. "Homebuyers who can afford to sit on the sidelines during this
overheated housing market will definitely be rewarded."
And if you're in the market to buy right now and can't wait it out? "Remain
patient. Exercise caution. Don't ever pay more than you can comfortably afford," says
Shapot. "Consider other options, perhaps in different neighborhoods or off market
properties that haven't yet been listed. Look at properties that have been on the market
a while and appear overpriced; there is less likelihood that there will be a bidding war
and perhaps the homeowner will be sensible and consider reasonable offers."
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