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Three reasons there won’t be a 2021 housing market crash

Housing bubble boys should take the year off

lightbulb

2020 came, and with it COVID-19. Five weeks into the crisis, demand in the U.S. housing market bottomed and then after about nine weeks, began to climb again, with purchase applications making a full V-shaped recovery by early June. The housing bubble boys had those five glorious weeks when it finally looked like the market would succumb to their dire predictions of a housing crash. That is not much time to hawk a book, website, newsletter or what-have-you, but I guess one has to make hay where the sun don’t shine – or however that goes.

Now, in the first weeks of 2021, it’s like de ja vu all over again. Our friendly neighborhood bubble boys are hawking a 2021 housing crash, citing as evidence the moderation of some housing data metrics that inevitably follow parabolic increases. But they see these moderations back to trend as the harbingers of a housing crash that will send home prices back to 1996 levels in a short time.

Remember, all housing bubble boys have to believe that prices go back to the start of the original bubble, hence the marketing of housing bubble 2.0. 

But it takes more than the housing data moderating back to trend to crash the market. Home prices would need to fall 68% to get back to the interim low. Considering where we are now, with home prices rising at the “too-fast” rate of over 6%, this seems unrealistic at best. But let’s put that aside for now and imagine what factors could come into play to crash the market based on historical precedent.

1. We would need a lot of forced selling and foreclosures. 

Most forbearance plans were scheduled to end at the beginning of 2021.  This could have, in theory, caused some homeowners to consider selling if they were unable to resume paying their mortgage due to job loss or reduction in income. 

But there are two important reasons why this would not crash the market. First, the Biden administration has proposed extending the national moratorium on evictions and foreclosures until the end of September 2021. If the economy has not sufficiently recovered by this time, it seems likely that this deadline will be extended once again.

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