Why the Housing Market hasn't Crashed Yet (repeat of 2008?)

The Housing Market hasn't crashed yet in 2023. With home prices only down slightly according to the National Association of Realtors. Concerningly, the current trends in the market suggest we could be seeing a repeat of the beginning of the 2008 downturn playing out.

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Some homebuyers and real estate investors are interpreting this slow pace of price declines as a sign that the Housing Market won't crash. However, it's important to remember that a similarly slow pace of price declines started at the beginning of the 2008 crash. Which, combined with the factor that home prices in America in 2023 are 30% overvalued compared to incomes, rents, and inflation, highlights that it's very risky for a homebuyer to be buying into today's market.

Of course - prices are being kept afloat by historically low inventory levels. With the National Association of Realtors showing that homes for sale are about 50% below the long-term norms in 2023. This low inventory is creating the perception of strong demand in some markets even when home sales are near their lowest level in 15 years.

The primary issue in the US Housing Market right now is that sellers aren't listing. With new seller listings down 25% YoY according to data from Redfin. These low listings are keeping inventory low. But eventually listings should increase into the future as more people with big mortgages run into economic trouble.

Data from Fannie Mae shows that the Debt to Income Ratio for homebuyers on the US Housing Market right now is nearing 40%, the highest level on record (at least going back to 1998). These sky-high DTI Ratios highlight how lots of homebuyers are struggling to afford their payments after they purchase, with affordability today being even worse than in 2006-07 before the last housing crash.

Ultimately these high DTIs will result in more forced selling, mortgage defaults, and foreclosures. And thus more listings and higher inventory.

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