Why There Won’t Be A Housing Market Crash

The real estate market has been on a wild ride the last couple of years. While casual real estate observers have been calling this surge in prices a bubble on the verge of bursting, there’s no factual data to back that up. Let’s look at why we will not be seeing a housing market crash anytime soon.

What’s Causing Las Vegas Home Values To Increase?

The first thing we need to look at is why home values are increasing. Nationwide, the cause is a lack of real estate inventory. That’s a huge reason here in Las Vegas as well. At the time of writing, there were only 3,142 homes listed for sale, which is even lower than it was at this time last year. When homes go on the market, they receive multiple offers, many cash, which drive up the prices. We have out-of-state buyers, investors, and those looking to purchase with the intention of using the home as a short-term vacation rental, driving prices up on our limited inventory.

Another issue affecting inventory is that housing construction came close to a complete halt after the crash in 2007 and has never picked up to the level needed to have a balanced housing market. 1 million new homes are expected to be built nationwide this year, but that is still not nearly enough to satisfy demand. The National Association of Realtors estimates that we need 4 million homes to be built to see a balanced market.

Tighter Lending Requirements Will Help The Situation

We need to remember that we are not seeing history repeat itself. One of the biggest reasons for the housing crash in 2007 was the extremely relaxed lending requirements. People were borrowing far more than they could afford since lenders did not verify income. Borrowers also entered into adjustable-rate mortgages (ARM), which meant that a borrower’s monthly payment could increase based on the market interest rates. Rates increased, causing monthly payments to increase to unaffordable levels, and borrowers defaulted on their loans, spiraling into foreclosure, and eventually, the bubble burst.

Lending practices today are much more strict. In 2020 the typical credit score for mortgage borrowers was at a record high of 786, showing that borrowers should also be much more stable than in years past.

No Need To Panic

Experts say we should not panic since the cause of today’s wild price appreciations is completely different from what we saw with previous housing crashes, experts say we should not panic.

Yes, housing values will likely come down a bit, but that’s to be expected. The real estate market is cyclical, and a small dip in prices is not cause for concern.

Bottom line, if you are able to purchase a home in today’s market, you should. We anticipate more price increases, especially in the long term. If you have questions or would like an experienced real estate agent in the Las Vegas area to help you with the home buying process, give the Villa Group a call!