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I used to be sure about this, but I am not so sure anymore. 20% is a fairly small change given that prices are up 2x-ish in some urban areas over the last 5 years. But generally, I do not see a housing crash coming because:
The increase in demand for housing is fairly organic. Young people want to buy houses.
The supply cannot keep up with demand due to NIMBY policies disallowing building and the sorry state of public transit, which further discourages densification. (even the 'good' performers like NYC/Boston are struggling on transit lately)
It is hard to default on low interest rate mortgages. Especially now that they aren't subprime.
The way I see it, a housing crash will require massive population shifts away from dense urban areas, and that simply does not seem to be the trend right now. We might see tech hubs suffering, with startup stocks being in the dumpster and a general move towards T2 cities like Austin/Atlanta away from the major hubs of SF/Seattle. Interestingly, NYC is seeing more of an internal readjustment as businesses move to other boroughs (LIC & Jersey City*) instead of moving out of the Metro area.
America's urban housing market seems inflated, but it has been fairly cheap when compared to Canada, London or Indian markets I know about (Mumbai, Bangalore, Delhi). For ex: my family's 800 sqft 2 bed apartment in Mumbai costs $600,000 while the average wage in the area is around $15k/yr. I know the Indian equivalent of 'Harvard grads' who have no idea how they'll be able to afford an apartment in the city. Canada has gone completely bonkers. Compared to global markets, the American urban market is surprisingly 'sane'.
So the questions are, what kept the American urban costs so 'reasonable' for so long (white flight? or just plain availability of space); and why would you expect the American housing costs to go back to being 'anomalously affordable' as we come out on the other side of this boom-bust cycle ?
Also, if the relatively insulated economy of the US with its affordable housing prices sees a crash, what's going to happen to Canada? (Maybe we'll find out if there is truth to the Chinese investors story)
My total-market 401k balance did not change in 2022 despite maxing out everything. If that does not say recession, then I do not know what does.
I am partly & selfishly hoping for a massive housing crash, because all my money is in stocks and I lost a ton of money, so I hope everyone else does as well. Everytime stocks crash and houses stay up, you see a massive wealth transfer from renting young professionals to the older homeowners.
Land Economics versus Structure economics is the big reason American prices didn’t go insane.
Structure costs follow construction costs.
Land costs follow either (A) ability to pay for a scarce good or (B) nearly unlimited supply and relatively free. Vast simplification but those two models roughly explain the US. A few cities (often due to lack of cheap transport job, land regulation (including Feds sitting on a ton of Cali land or density limits) etc) had a scarcity of land. So land prices sky rockets and lower interest rates boosted ability to pay. Obvious cities SF, San Diego, La, NYC.
The rest of America has no tightness of land. Houston just builds another ring around the city when it grows releasing more land. Other areas in Iowa can’t give away land. So for most of America there’s no scarcity of land.
In land abundance areas home prices mostly follow construction costs. If interest rates fall it doesn’t change construction costs. Sort of like Ford which can just build more cars Lennar can just build more homes. Supply chain did temporarily limit more building.
Basically America stayed cheaper because we had a release valve. Just move to Texas for a 4K sq foot 400,000 home was realistic.
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