Does the Lowest Housing Market Levels Since 2020 Mean a Housing Crash?

Watch the full episode: https://www.youtube.com/watch?v=qKkg7s27EY0

According to the National Association of Home Builders, the housing market hit its lowest levels since May of 2020, with a 12-point drop. This is the biggest decline on record and has some people concerned about a total market collapse.

However, Luke isn’t worried. The housing market is not crashing – it is normalizing. The drop sent levels to 55. History says that this “crash” is temporary, and the market rarely stays below the 60-level for long. So, in fact, 55 is a pretty healthy, median reading.

After being elevated for the last 24 months, approximately, this “crash” is just sending levels back to normal. There are two main reasons for this: supply and demand.

First, we are in the most supply-constrained housing market of all time. Let’s look back at the market over the last 20 years. In 2004-06, everyone was trying to own a home, and it became a defining theme of American culture. This period saw an enormous home buying spree.

Then, 2008 hit. Lots of folks lost their homes, and demand fell. In the 2010s, most started renting or chose to live with their parents for a while longer. Home construction was very low between 2008-19 – the lowest volume of home building on record.

And today, this group of now-25-to-35-year-olds are buying homes. This pent-up demand has been sitting on the sidelines, waiting for the market to normalize to buy.

By 2020, everyone wanted to start building homes again, and home buying made a comeback.

Supply will come from home builders.

But change won’t happen overnight. To compensate for the past decade of underbuilding, we’ll have to overbuild for the next 10 years. We’ll remain in a supply-constrained market for quite a while. And that means that we are not amid a housing market crash.

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