There are a few things that we know for certain in this market, interest rates are rising, home competition is still high, but lowering, and we are all afraid of a potential "crash." Although the "crash," if it happens, will not be close to 2008, we are still expecting somewhat of a strong shift in the real estate market. The main reason the real estate market went so crazy was due to an overwhelming demand with limited supply. However, now one research firm is warning of a new threat looming: too many houses...
When the market crashed in 2008, homebuilders were reluctant to ramp up construction again. This decade-long slowdown in new home completions culminated during COVID-19 as demand surged far past the existing supply. As the housing market slows down, most experts do not see a housing bust coming, in part because of the low supply of housing - which stands in sharp contrast to the overzealous building that lead to the last crash. However, Zelman & Associates - a housing research and investment firm has a different perspective. CEO Ivy Zelman is concerned about longer-term trends that indicate housing demand is bound to weaken. Her firm's analysis reveals slowing household formation and population growth, as well as declining immigration levels. Sooner, rather than later, we will be left with more homes than people looking to buy. Zelman argues that the recent buying frenzy represents an anomaly spurred by government stimulus payments, record-low mortgage rates, and heightened investor activity. Once these activities fade and new housing construction comes onto the market over the next two years, demand will not keep up with the pace of supply.
Zelman earned her legendary status in real estate circles by predicting the housing bubble in the mid-2000s along with a few others. This switched around 2013/14 to an optimistic outlook with older millennials aging out of apartments and into single-family homes, meaning that the market had "room to run." from 2016-2019 the market achieved an ideal balance between growing supply and sustainable demand. The market was on an upward trajectory, nobody was overleveraged, and investors were not crowding the market. Then in 2020, this all switched. The market went into overdrive, but the factors contributing to the soaring housing market are now subsiding as mortgage rates climb and government support fades. Soon, the housing market will be forced to switch just as developers are set to deliver new housing units in volumes not seen before the great recession.