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U.S. Housing Market Could Be Heading Toward a Crash as Prices Start Falling

Last Updated September 23, 2020 1:01 PM
Harsh Chauhan
Last Updated September 23, 2020 1:01 PM

The U.S. housing market is losing its wheels as consumers seem to be spooked by the possibility of a recession.

Economist Robert Shiller has already warned that the U.S. housing market might crash and home prices could start declining. And now, the monthly housing trends report for August 2019 from Realtor.com  (a real estate listing website) suggests that a housing downtrend might be around the corner.

Weak price growth stokes fear of a potential U.S. housing market crash

us housing prices
U.S. home values have declined year-over-year and are taking longer to sell, industry data reveal. | Image: Shutterstock

Realtor.com’s latest data reveals that the median listing price for a home in the U.S. was $309,000 in August, up 4.9% from the prior-year period. But the price declined 1.8% month over month.

The time a house spent on the market increased three days from last year and four days from July to a median of 62 days in August 2019.

What’s alarming is that the U.S. housing market traditionally picks up the pace during the summer months, but that doesn’t seem to be the case this time. Realtor.com points out that the July to August decline was the largest seen since 2012 when the site started compiling U.S. housing market trends.

The latest data from Realtor.com adds to the pall of gloom over the U.S. housing market and exposes us to more data points that indicate a crash might be on the way.

Real estate data firm CoreLogic’s Home Price Index (HPI) report  for July said that home prices had increased 0.5% over the previous month. Realtor.com’s data, on the other hand, said that the median listing price fell  0.2% from June to July. So the data for August clearly indicates that the U.S. housing market’s slowdown has accelerated.

Potential buyers are spooked by the possibility of a recession

Robust consumer confidence and low-interest rates  should have ideally led to stronger housing demand and higher pricing.

The U.S. government would want you to believe that the consumer is in high spirits and the housing market will get better. But at the same time, the probability of a recession seems to be taking hold of consumer confidence and weighing on the domestic housing market.

Realtor.com reports that 11% of the buyers it surveyed in August believe that there will be a recession by the end of 2019. Alarmingly, 33% believe that there might be a recession in 2020, and in that case, 56% of the responders in the survey would stop their search for a new home. That’s bad news for the U.S. housing market.

Shiller, who had correctly predicted the 2000 dot-com bubble, has already said that he won’t be surprised to see a recession next year.

If such negative sentiment continues prevailing, the U.S. housing market’s decline could accelerate and eventually lead to a crash despite the presence of other favorable factors such as low-interest rates and strong consumer confidence.