Housing Is Not Going To Crash: The Long-Term Benefits of Homeownership Amid High Mortgage Rates

The current climate of rising home prices coupled with historic high-interest rates has left many potential buyers and sellers feeling uncertain. Concerns about a housing market crash have escalated, with a LendingTree survey indicating that 41% of Americans expect a significant market downturn within the next year. Among them, 74% believe it could be as severe as the 2008 crisis. However, there are several indicators that suggest otherwise. Here is why it may still be a wise decision to invest in a home, despite today's challenging conditions.

Homeowner Equity

The equity landscape today is vastly different from what it was during the 2008 crisis. According to data, 42% of homes in the U.S. are mortgage-free, meaning they are owned outright and are not at risk for foreclosure. Additionally, almost 60% of homeowners have at least 60% equity in their homes. This is vastly different from the pre-2008 era when risky lending practices enabled people to purchase homes with little

or no down payment. When the bubble burst, these homeowners had little or no equity and often found themselves owing more than their homes were worth. As a result, many walked away, leading to a cascade of foreclosures. The current high levels of homeowner equity are a safeguard against a similar phenomenon happening again.

Foreclosures & Delinquencies

ATTOM's Year-End 2022 U.S. Foreclosure Market Report showed that foreclosure filings were up 115% from 2021, but down 34% from 2019 and a staggering 89% from their peak in 2010. Moreover, many current homeowners facing foreclosure have substantial equity and are likely to sell their homes in a traditional manner, pocketing the cash and re-entering the market when their circumstances improve.

Inventory and Demand

Another vital factor that underpins the housing market is the imbalance between supply and demand. The U.S. is amid a severe housing shortage; Freddie Mac estimates a need for 2.5 million additional units to satisfy current demand. This persistent shortage keeps prices high. Even when interest rates come down and inflation stabilizes, the strong demand is not expected to wane, exerting upward pressure on home prices.

The Long-Term Picture

When considering these factors—strong economy, low inventory, and robust demand—it is evident that the housing market possesses a sturdy foundation that diverges from conditions leading up to previous crashes. Homeowner equity positions are strong, meaning the market is unlikely to be flooded with foreclosures. To put things in perspective, the average sold home price in 1963 was $17,800. In the fourth quarter of 2022, that figure jumped to $479,500.

Owning a home remains one of the most reliable means of building wealth over time. The current market may be challenging, but it also offers opportunities for long-term investment and financial growth. While short-term fluctuations are inevitable, the long-term benefits of homeownership should not be overshadowed by current high mortgage rates or fears of an impending crash.

So, before you decide to sit this one out, remember that the long-term trends suggest that housing is still a solid investment, and there are distinct benefits to entering the market even when conditions seem less than ideal.

In conclusion, while it is natural to feel concerned about high mortgage rates and home prices, the fundamentals of the housing market remain strong. These include a robust economy, low inventory, strong demand, and the substantial equity that most homeowners have in their homes. These factors contribute to the argument that housing, as a long-term investment, is not only safe but also one of the most effective ways to build wealth.