Gen Z Hopes for a Housing Market Crashes, But Will Struggle To Buy

According to Consumer Affairs, 78 percent of Americans believe there will be a housing market crash by the end of the year, while 50 percent expect it to happen in 2023.

While that bodes poorly for homeowners wanting to sell, many Americans, particularly Generation Z, see it as an open door to finally afford their own home. 75 percent of the people Consumer Affairs surveyed responded that they would likely try to buy if the housing market crashed.

But for some, even if prices fall drastically, it may not be enough. Consumer Affairs found that 84% of Gen Zers are actually hoping for a market crash, believing it could bring prices within their reach.

The only problem – with an average of only $15,601 in savings, they are the least prepared group to purchase a home.

Will There Be Enough Homes To Buy?

Even those who can afford to buy may be disappointed in the number of houses on the market.

Up to 82% of current homeowners fear the value of their house will drop into the negative equity range pushing down their net worth. Those fears could cause a continued shortage in the housing supply, if homeowners choose to ride out the economic downturn instead of taking a loss on their investment.

Ayad Amary, Senior Wealth Advisor and CFP at Wealthcare Advisory Partners, reflects on the current housing situation. “There are many factors to consider in relation to the question of a housing market crash. In the short term, I would expect many would-be sellers may no longer put their homes up for sale because they would likely be giving up a much lower mortgage rate on their current home to swap into a newer one.”

Will Gen Z Get Their Housing Market Crash?

Home Prices Plateau and Then Decline Steeply

Are home prices beginning to level out? If the housing market shows a consistent price increase year over year, that may signal a crash, or at minimum, that a price correction is impending.

During the 2020 housing market boom, millennial buyers, in particular, bought houses with historically low-interest rates. As the demand outgrew the supply, prices soared to an all-time high, outpricing all but the most ambitious home buyers.

In a housing market correction, the prices begin dropping when more houses are on the market than buyers.

The overall market is then affected when home values fall and level out. It may stop there, but if homes see a sudden and steep drop in value, this signals a housing market crash has begun.

Too Many Risky Mortgages

Riskier mortgages and looser credit requirements are part of the formula that creates a housing bubble. When buyers are offered mortgages for homes that are typically out of their price range, the only affordable mortgage may be one with an adjustable interest rate.

If the Federal Reserve begins to raise the interest rates, as they’ve been doing, some homeowners won’t be able to keep up with the higher payments, and thousands of loans will go into foreclosure.

Banks will be stingier with their lending money, and the number of loan approvals decreases, leaving more sellers on the market than buyers.

This increase in inventory contributed to the 2008 housing market crash and is a sign to watch for that another crash will occur.

According to ATTOM Data Solutions, foreclosures are already on the rise.

The U.S. Economy Is Weak

With a strong economy and low unemployment, consumer demand for housing means prices stay high.

If the economy is weak, it will affect the housing demand as fewer people take out higher interest mortgage loans. Because of inflation, they have less discretionary money to spend each month.

According to NPR, mortgage applications are down by 21% from June 2021, indicating that fewer people can afford to purchase a home.

As a result, the price of homes will fall due to excess supply on the market. If the fall is gradual, it will result in a natural market correction versus a rapid decline that causes a market crash.

Mortgage Interest Rates Are on the Rise

The lower the interest rate, the more house a person can afford. Historically, the Federal Reserve raises interest rates to curb inflation.

When that happens, buyers can no longer afford to spend as much on a home. Sellers must lower their asking price or have more difficulty finding a buyer.

Although we’re nowhere near the historically high-interest rate of 18.45% seen in October 1981, the Federal Reserve has raised the rate five times since the beginning of 2022.

More increases could scare off homebuyers waiting to see if rates drop again.

What Does the Future Hold?

If you’re in the market to buy or sell a home, watch for these signs, as they can signal a market crash or correction.

According to Consumer Affairs, only 27% of those surveyed would prefer the market to correct itself instead of a housing crash.

If it does crash, 75% say they plan to buy a house while prices are low. Gen Z hopes to lead the way, despite having the least amount in savings and potentially fewer homes on the market as options.

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This article was produced by Wealthy Living and syndicated by Wealth of Geeks.