How Does a Housing Market Crash Affect Homeowners?

how does a housing market crash affect homeowners

If you’re wondering how a housing market crash affect homeowners, it’s important to be aware of the warning signs of a coming downturn. Luckily, the housing market hasn’t been known to experience any notable price bubbles. High transaction costs discourage overly-speculative behavior, but every market occasionally experiences an irrational exuberance that leads to a rapid price increase, before falling back to normal.

Loose lending practices and rampant investor speculation led to the skyrocketing price of homes 15 years ago. The trend of rising housing prices could come to an end in 2020 if interest rates continue to rise. While waiting for the crash to happen might be a good idea, it might not yield the desired results. Fortunately, homeowners with a high equity level are better able to absorb a decline in home prices and cover unexpected costs.

Because building levels are so low, the current housing market is abnormal. While there are several warning signs of a housing market crash, they’re less likely to produce the same kind of destruction as the one that shook the economy in the wake of the 2007-2009 crisis. One such warning sign is the lack of housing inventory. Without more homes, the market will remain strong for a while. However, the housing market crash could cause foreclosures on a large scale.

Even after a housing market crash, many Americans continue to desire homeownership. Because of this, many lenders tightened lending standards. Today’s mortgages are less likely to default than they were prior to the housing market crash. But lingering nerves from the housing crisis still affect the way home buyers purchase a home. Those who did lose their homes had to face a lot of financial pain, which may be why the real estate agents are less likely to push buyers to buy the most expensive home possible.

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