The question of whether housing will become more affordable if the market crashes in 2024 is a complex one, with various factors influencing the potential outcome.A market crash can indeed lead to a decrease in housing prices, as seen historically, but the extent and duration of such a decrease depend on the underlying economic conditions, the reasons for the market downturn, and the response from policymakers.
As of 2024, predictions regarding the US housing market are mixed. Some experts forecast a modest increase in home prices, while others anticipate a flattening or slight decrease. For instance, Freddie Mac had initially predicted a 2.8 percent increase in home prices for 2024, but recent revisions have cast doubt on this outlook. Similarly, McBride expects home prices to average low- to mid-single-digit annual appreciation over the next five years, aligning with the long-term average.
On the other hand, most industry experts do not foresee a housing market crash in the near future. Factors such as low inventory, lack of new construction, a surge of new buyers, strict lending standards, and fewer foreclosures contribute to a stable market. Forbes Advisor also highlights that while mortgage rates remain high and home prices are elevated, housing activity is stagnant, which does not necessarily indicate an imminent crash.
The housing market's resilience is further supported by the fact that home prices declined for three consecutive months due to high borrowing costs, yet year-over-year prices jumped by 6%—the fastest annual rate since 2022. This suggests that while the market may cool, a dramatic drop in prices akin to a crash may not be on the horizon.
Factors That Could Influence Housing Affordability in the Event of a Downturn
Government Intervention
One of the key elements to consider is the role of government intervention. In past economic crises, government programs have been instrumental in stabilizing the housing market. For example, during the 2008 financial crisis, the federal government introduced measures such as the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP), which helped many homeowners avoid foreclosure and stay in their homes. If a market crash were to occur in 2024, the government's response would likely play a significant role in determining the extent to which housing prices are affected.
Demographic Trends
Another factor to consider is the demographic trends driving housing demand. The Millennial generation, which has been entering the housing market in large numbers, is expected to continue to drive demand for the next several years. This sustained demand could help cushion the impact of a market crash on housing prices.
Shift in Work and Lifestyle Patterns
Additionally, the shift towards remote work, accelerated by the COVID-19 pandemic, has led to changes in housing preferences and demand patterns. Many people are seeking larger homes with dedicated office spaces, often in suburban or rural areas rather than urban centers. This trend could influence the housing market's resilience in the face of a downturn, as the demand for certain types of properties may remain strong.
Investor Activity
Investor activity is another variable that could affect housing prices during a market crash. Investors who purchase properties to rent out or flip have been a significant force in the housing market. Their actions in response to a crash—whether they decide to sell off properties or buy up more in anticipation of a recovery—could have a significant impact on housing prices.
Economic Environment
Finally, the state of the broader economy and the job market will be crucial in determining housing affordability. High levels of employment and income growth can support housing demand and prices, even during economic downturns. Conversely, if a market crash leads to widespread job losses and reduced consumer confidence, the demand for housing could decrease, leading to lower prices.
Summary: While a market crash could theoretically make housing cheaper, current trends and expert analyses suggest that a significant crash is not expected in 2024. Experts predict a cooling down rather than a dramatic crash. Instead, the market may experience a rebalancing, with slower price growth or minor adjustments. Therefore, you should keep a close eye on economic indicators and market forecasts, as these can offer valuable insights into future trends and potential shifts in affordability.
