In seemingly every city in the United States, individuals and families interested in purchasing a home are noticing a common pattern: Where buyers of a generation ago tended to negotiate house prices down, buyers of today are having to offer large amounts of money over asking prices to nail down a purchase.
This is to say nothing of cities such as Seattle or San Francisco, where even small homes cost upwards of $2 million; even in cities such as Boise and Salt Lake City, a hot housing market is making homeownership an insoluble problem for new buyers.
The Future of Housing
So what is causing home prices to soar?
No one quite has the answer. Clearly, the high salaries paid out by big tech companies are influencing housing prices in the Bay Area and by extension the West Coast and beyond. Investment in real estate by private equity companies may also be driving up the cost of houses in other areas.
Yet it is also clear that housing costs cannot simply increase indefinitely without the bottom falling out of the market. In San Francisco, a wealth of tech-based jobs can allow individuals working for large conglomerates to own property. For millions of other workers who aren’t bringing in six-figure salaries every year, however, it has become impossible to afford down-payments on homes. And even six-figure salaries aren’t cutting it in many areas.
The Role of Interest Rates
But the problem here isn’t completely related to tech salaries. Individuals earning high salaries can currently afford million-dollar homes because interest rates are extremely low. If these rates increase over the next few years, many homeowners in expensive areas could find themselves struggling to make payments on ballooning mortgages.
A similar thing occurred during the 2008 crash; however, very few homeowners at the time had taken out mortgages on million-dollar properties. The stakes nowadays are much higher. And it stands to reason then that a housing market that cannot sustain itself must crash. Add a pandemic into the mix, and the result could be a catastrophic blow to the global economy.
Preparing for a Downturn
Fortunately, the economy has remained stable over the last year; in many respects, things may be more stable than they appear. And if interest rates remain low, an economic disaster could be avoided. But how should individuals prepare for a potential housing market crash?
The answer is a complex one, but waiting on a dip in the market to purchase a home might help out buyers who want to get in on the property market but can’t at present due to high home costs. To wit, allowing the market to correct itself over the next few years might open up opportunities for new buyers. That is by no means a bad thing.
Looking for Opportunity
Saving money for a possible economic downturn might seem difficult at a time of soaring living costs, but we’ve seen via the COVID crisis that social stability can hit serious periods of turbulence. If the housing market crashes, expect to see layoffs and hiring freezes across the country.
At the end of the day, however, remaining optimistic and looking for wider patterns in the housing market can make a big difference in how you can respond to a potential market crash. Keep a cool head and rein in your expenses as much as you can: You might find opportunity in even the thorniest of markets. In a “corrected” market, you might even find your dream house within your grasp.