US housing crash – what could make it happen?

The impact of the market behaviour at the end of 2021 and beginning of 2022 caused higher than normal upward value trends, which experts agreed led to a market slowdown rather than a market crash. “We’ve had, as you know, a very large increase in home prices—18% in one year,” said Frank Nothaft, the chief economist at CoreLogic, who was a voice of calm when the media got the jitters at the beginning of 2022. “It’s the largest 12-month increase in home prices in our national index that we have measured in the CoreLogic Home Price Index.”

Nothaft added at the time: “We’re expressing a slowdown in home price growth.” And so far, he appears to be right. 

Why is America’s housing market cooling off? 

With the housing market in the United States cooling off considerably, homebuyers could be forgiven for fearing the worst—an impending market bubble or crash. What is more likely, however, is that the drop in home sales is due to homebuyers’ reluctance to engage with soaring housing prices.

Another factor that is likely impacting demand for homes is that the home price growth of 2020 and 2021 is simply not sustainable. Because home prices are stabilizing to more normal levels historically, properties are likely to sit on the market a little longer than they have over the past two years.

Pending and new home sales have been falling recently as the market adjusts to higher prices and inflation, as well as mortgage rates that continue to increase. In April, for instance, pending home sales dropped by 3.9%, according to numbers released by the National Association of Realtors (NAR). Sales of new single-family homes, meanwhile—which account for 9.5% of all home sales—fell to a two-year low in May. That 16.6% drop represents the fourth-straight monthly decline.