The US housing market has been on an upward trajectory for the past two years, with new subdivisions and soaring home prices. However, this growth may come to an abrupt end with a housing crash looming. Home sales have been slowing down, with existing home sales dropping by over 20% in the past year. Home loan application volumes are also down by nearly 64% since August 2021. Housing affordability is at its lowest level in 33 years, with the average home price declining by 5.5% from the record high of nearly $400,000 in June 2021. Home prices have fallen by 7.7% on average every week, a level not seen in decades. These trends have led to a massive supply of new homes for sale, rising housing inventory, and over 9 months' supply in the US, the highest level since the tail end of the 2008 crisis.
Some argue that this housing market is different from the one in 2008, with people able to afford their mortgages better. However, the mortgage payments as a percentage of a person’s income are reaching levels not seen since the last housing crisis. Additionally, the average debt-to-income ratio of homebuyers today is comparable to the mid-2000s, indicating that people's ability to afford mortgage payments is as stretched today as it was then. Home buyer down payments in 2021 and 2022 were lower than in 2006 during the peak of the Subprime Bubble. Moreover, mortgage lending standards are as bad as in 2008, as homebuyers' ability to repay and the size of their down payments are similar.
One of the most concerning statistics is that home flipping has soared to levels seen before the 2008 housing crash. The 2008 crash was caused by home flippers overleveraging themselves. The latest evidence suggests that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions and then wrecked local housing markets when they defaulted en masse. In conclusion, the US housing market may be heading for a crash, and it is not a matter of if but when.