A house made of dollar bills in flames, representing a housing market crash

Nationally, housing markets saw a decline throughout 2022, despite increasing interest rates. However, it seems, according to those in the know, that a housing market crash may not be happening based on the state of the present market.

The Greek philosopher Heraclitus lived around 500 BCE and is credited with saying: “Change is the only constant in life.” Benjamin Franklin added “one’s ability to adapt to those changes will determine your success.” We need only look at the weather, the stock market, relationships and real estate to note that change is ever-present.

Small changes and minor ups and down are expected, but when things get stormy, literally and figuratively, we need some knowledge, strategy and a sensible game plan. The information part leans heavily on historical data, starting with the real estate market in general peaking every 18 years give or take. Interest rates, economic factors, employment, legislation and regulations impact home buying, building and selling.

Across the board more than 60% of the American population owns a home at some point, and the ones who stay put throughout their mortgages – 15, 20 or 30 years – often find their greatest asset is their property. A long-term outlook can be the most lucrative, yet other factors play a role in home values and real estate investments, too.

With Austin the state capital, along with educational institutions and Fortune 500 companies, the economy is much more stable around here than say a small town with a huge factory or military base which closes, throwing people out of work and plummeting real estate values.

The Difference Between a Housing Market Bubble and Crash

Stability in real estate runs between highs and lows dubbed “bubbles” and “crashes”. A housing bubble occurs when demand is high, most likely interest rates are low, and home prices exceed the average price per square foot which is considered normal. Currently, it’s around $245 per square foot, and that can change in the time it takes to read this blog.

Early in 2020, real estate was outperforming many other investments, and job opportunities in all sectors, especially here in Austin, were abundant. Prices rose, and it was a seller’s market. Buyers anxious to get into a home were bidding against one another over the asking prices.

Housing bubbles, like soap bubbles, cannot last, and prices usually crawl back down into a more normal value range. Other times, they simply crash and enter the value territory which is actually less than what someone paid. Now the homeowner’s asset value is negative, and that makes folks begin to squirm. The Great Recession beginning in 2008 crashed the real estate market on the heels of a decade-long expanding bubble.

Additionally, home lenders were doling out mortgages to new buyers with low credit ratings, and soon loan defaults took center stage, burying some financial firms along the way.

How Often do Housing Markets Crash?

The previous housing crash was in the 1930s, and they are less frequent than people may think. The one before that occurred in 1873 and before that was the Panic of 1837. However, when property owners find themselves upside-down, where the property value is below the purchase price, one best practice is to hunker down and wait it out. The whole Great Recession may have been avoided by not trying to open up homeownership to people who could not afford it long-term. It also points to the downside of adjustable rate mortgages, especially if the adjustment does not match a comparable salary or wage adjustment and/or employment is not constant.

The best game plan for avoiding a personal real estate disaster when things fall, not if they fall, employs a few principles:

  • Buy only what you can comfortably afford to begin with
  • Make the largest down payment possible
  • Maintain an emergency fund in a savings account
  • Try to separate emotions from common sense
  • Contemplate refinancing your mortgage

The last one can reduce your payment, but extends years on the mortgage. There can exist a feeling of discouragement when you would have paid off the original mortgage and realize you have 5, 8 or 12 more years. Along with that comes the realization that you are older now, too.

What to do During a Housing Market Crash

Increasing the value of your property during a crash through home improvements, especially the DIY (do-it-yourself) variety, is an attractive strategy to increase home value. With all the step-by-step youtube.com videos, even the most tool-challenged homeowner can install a backyard water feature, paint rooms, refinish floors and add a simple front stoop or repair an existing porch or deck.

The best advice is that you do not crash emotionally or financially during a housing crash, and once things right themselves, which they will, you will again find yourself in a good financial position in your home. Adapt to the changes, as Ben Franklin wisely suggests, and you can experience success.

If you have questions, or need some advice on the housing market, contact us at Habitat Hunters. We thoroughly understand the industry, communities and market conditions, and provide our clients the most up-to-date market data and solutions to help facilitate a smooth transaction.