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US Housing Market Crash 2022: What to Do as an Investor If It Happens
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US Housing Market Crash 2022: What to Do as an Investor If It Happens

Are experts seeing signs of a housing market crash 2022? Whether it is true or not, investors should know how to prepare in case a crash happens.

In the past couple of years, the US housing market demonstrated an exceptional performance amid the pandemic. In 2022, homebuyers across the country continue to face difficulties in finding a property to buy as home prices skyrocket and inventories drop. Homebuyers and real estate investors engage in bidding wars, and the US real estate is undoubtedly a hot seller’s market. Many are wondering if the trend will continue or a potential US housing market crash is forthcoming in 2022.

Table of Contents

  1. What Is a Housing Market Crash?
  2. Will the US Housing Market Crash in 2022?
  3. Possible Causes of a Housing Market Crash 2022
  4. How Can Investors Prepare for a Potential Housing Market Crash?
  5. Are You Ready for a Housing Market Crash?

Check out our video below to find out if another housing crash is imminent and what you can do as a real estate investor to protect yourself and your assets:

What Is a Housing Market Crash?

A housing market crash happens when there is an unexpected and significant plunge in home prices. Often, a real estate market crash starts with a housing bubble. A housing bubble begins when there is a sudden surge in demand for residential properties despite a limited amount of supply. The imbalance between supply and demand causes real estate prices to rise, usually at an alarmingly high rate.

When speculators enter the market, the demand for housing will further escalate and this will inflate the bubble more. The new demand and lack of supply will cause an additional upsurge in home prices. However, despite the increase in prices, buyers are still keen to buy a home, and some are even willing to pay top dollar just to secure a property. Further, since inventory could not keep up with the continuously increasing demand, real estate companies will take advantage of this by building new houses. Investors will also try to make a profit by getting their hands on fixer-upper flips.

During a real estate bubble, homebuyers typically purchase their properties at very high prices. This means they have to borrow more money to fund their purchase or even use their savings and retirement funds for a down payment. When times suddenly get tough, people will find it difficult to keep up with their mortgage payments, and this often results in foreclosures.

When Does a Housing Market Crash Happen?

So when will the housing market crash? After a certain period, more housing inventory becomes available as a response to the previous demand spike. However, by the time the supply increases, the demand for housing begins to shrink, causing the bubble to burst. When the bubble finally pops, a housing market crash happens. Home values will rapidly decline as the demand for housing drops while supply still increases.

According to Michael Jones, a broker and real estate consultant, the entire economy will suffer when the real estate market crashes. A housing market crash can result in job losses and reduced consumer spending, eventually leading to a recession.

A crash in real estate is often caused by a decrease in demand for housing while inventory keeps growing. The increase in housing supply is mostly caused by an increase of newly built homes from real estate investors and companies who want to take advantage of the prior demand. High debt levels can also cause a housing market crash 2022. Because some borrowers can no longer pay their mortgage, it can result in foreclosures, adding up to the housing inventory. Regulatory changes, increased mortgage rates, and other global factors can also cause a real estate market crash.

Will the US Housing Market Crash in 2022?

According to an article from Fox29, real estate experts believe that the US real estate market is not showing signs of slowing down. Home prices are not going to decline in 2022—in fact, experts predict steady price gains ranging from 4% to 6% this year. However, the double-digit increase in home prices and the high number of multiple offers for a property during the past couple of years will go down a bit.

Another article from AZ Big Media states that while the market is not going to remain unchanged, a major crash is not looming on the horizon. We can expect a settling of home prices as investors take a step back, opening more opportunities for regular homebuyers to find a property to buy.

While it is unlikely to see a US housing market crash 2022, nothing is set in stone and it’s impossible to predict with certainty. According to broker and real estate consultant Michael Jones, some experts say there is a possibility of a recession in 2022 because of several indicators.

Recently, the country experienced a decrease in consumer spending and an economic slowdown due to a series of minor stock market crashes. We’ve also seen global instability due to the pandemic and global crisis brought by the tension between Ukraine and Russia. They are three of the factors that stipulate the possibility that a country could be headed toward a potential 2022 housing market crash. As a real estate investor, it’s essential to know how to protect yourself in case a housing market crash 2022 happens.

Related: 2022 Real Estate Market Forecast: Top 10 Predictions

Possible Causes of a Housing Market Crash 2022

We’ve established that a real estate market crash is unlikely to happen in 2022 despite the anticipated decline in the appreciation rates of home prices. However, the said prediction is not totally in black and white. As mentioned, the country is seeing several developments that indicate a possible housing market crash 2022, including global instability and an economic slowdown.

Here are the other possible causes of a US housing market crash in 2022:

1. Rising Interest Rates

Experts predict that the Federal Reserve will start raising interest rates during the first half of the year. An increase in mortgage rates can impact the 2022 US housing market. While interest rates demonstrate no direct correlation with home prices, they can affect the demand for housing.

In general, low mortgage rates can spike buyer demand, leading to higher property prices. As mortgage rates are expected to go up, we can anticipate a slowing down in demand from homebuyers and investors. It means that home prices will not grow exponentially as in the past couple of years.

2. Increase in Construction and Building

One of the reasons for continuously rising home prices last year is the drastically low housing supply in many US real estate markets. However, experts say we can expect a reprieve from the low inventory issue as builders are working double-time to address the supply-and-demand problem.

With new homes being built and new subdivisions being developed, it can move the domestic real estate market to a more balanced condition. If the new constructions result in an oversupply, it can likely lead to a housing market crash 2022.

3. Global Crisis Can Lead to a Recession

With the current global crisis due to the tension between Russia and Ukraine, economists believe that the odds of a recession in 2022 could increase. The international sanctions on Russia’s oil exports are driving oil and gas prices up to a harshly high rate. It can result in a decrease in consumer spending and an increase in inflation.

However, the US economy remains steadily strong, and we are slowly recovering from the COVID-19 pandemic. There is a strong job market, and the tourism industry is now back on its feet, opening more doors of opportunities for short term rental market investors.

How Can Investors Prepare for a Potential Housing Market Crash?

While the odds of a housing market crash 2022 are low, no one is really certain about it and nothing in real estate is guaranteed. As real estate investors, it’s critical to be prepared for such unfortunate circumstances while they are not yet happening. Preparing for a potential recession or real estate crash can help you safeguard your investments and finances.

Here are some practical tips investors can do to protect themselves from a housing market crash:

1. Avoid the Fear of Missing Out

When there is a real estate bubble and the demand for housing substantially exceeds the available supply, it’s easy to get caught up in a buying frenzy. Investors and homebuyers are prepared for bidding wars, and some are willing to pay a significantly higher price than a property is worth.

The fear of missing out and not being able to buy a home while prices keep rising will likely drown you when there is a correction in market prices. When investing, it’s important to make informed and prudent decisions. Understand the real estate market analysis to ensure that you’re not buying an overpriced property just to join the bandwagon.

2. Stick to Your Budget

Do not purchase more than you can afford to pay. Real estate expert Michael Jones advised investors to review their budget and make changes whenever necessary. Only invest in properties that meet your realistic budget so you can still pay for your mortgage in case the economy takes a plunge.

Fortunately, Mashvisor can help you search for an investment property based on your specific budget requirement. You can use the budget filter while searching for a property and set your preferred minimum and maximum prices. Mashvisor will only show the properties for sale in your selected area that meet your budget specifications.

Mashvisor enables real estate investors to search for an investment property based on their set criteria, such as distance and minimum and maximum budget.

3. Build Your Home Equity by Making a Large Down Payment

Home equity refers to the value of your home that you own outright compared to how much you owe on a mortgage. A larger home equity means you own a bigger portion of your home. You can increase your home equity by making a large down payment that you can afford. When you own more equity, it can help prevent foreclosure in case things take a turn for the worse.

However, you should not spend all your money on a down payment. As investors, it’s very crucial for you to stay liquid and keep enough cash reserves that can help you get through tough times. According to Michael Jones, you will need access to cash so you can take advantage of other opportunities as they arise. Keeping enough cash reserves can also help you with your cash flow during an economic downturn.

4. Build an Emergency Fund

Building an emergency fund is essential to prepare for unexpected circumstances. Make sure to save enough funds to cover at least three to six months of expenses in case of emergencies. A bigger emergency fund may be necessary depending on your lifestyle, cost of living, and the number of people that depend on you.

An emergency fund is also important even if there is no upcoming recession or housing market crash 2022. Emergency funds can help you during the low season, especially if you are investing in vacation rentals. It can also help you in case of personal emergencies, such as job loss and sickness.

5. Diversify Your Investments

Another effective way to protect yourself from a potential housing market crash 2022 is to ensure that you don’t place all your eggs in one basket. If you only invest in real estate, you’ll risk losing all your money in case the US housing market plummets. To minimize your risk, it’s important to diversify your investments among different investment vehicles, including stocks, bonds, real estate, cryptocurrency, and commodities.

To effectively diversify your funds, it’s crucial to seek professional advice, especially if you’re not sure what to do or where to put your money. According to Michael Jones, seeking financial advice from a qualified professional can help you make informed investment decisions. It can also protect you from taking unnecessary risks.

6. Buy the Right Investment Property

Real estate investors who invest in the right investment property are less likely to get affected in case of a housing market crash. A home is still a necessity. When you invest in the right location where there is a steady demand for housing despite an economic downturn, you will not feel the impact of a crash that much. However, when you choose to invest in areas where demand is likely to get scarce, you’ll be one of the first to feel the adverse effects when the bubble bursts.

To prevent it from happening, it’s important to understand the real estate market trends in a particular location before making any investment decision. Thankfully, Mashvisor makes this easy for you by providing comprehensive and up-to-date real estate market data and real estate comps when you search for a property.

Related: What Is the Best Place to Buy Investment Property in 2022?

7. Be Proactive in Creating a Backup Plan

Another piece of advice from real estate consultant Michael Jones is to plan your finances proactively and anticipate a housing market crash 2022, even if it’s unlikely to happen. Do not take on additional debt, especially when you are not sure if you can afford to pay it back.

Moreover, build more side hustles and additional income streams to have more sources of funds to help cover your monthly mortgage. Most importantly, stay calm and avoid making rash decisions. Panicking during a recession or a housing market crash can cause you to take irrational actions that can cost you more.

Are You Ready for a Housing Market Crash?

After the drastic increase in home prices in the past couple of years, the US housing market is finally showing signs of stabilization in 2022. Real estate experts predict the rise in property prices will slow down amid the steady transaction numbers and more housing inventory entering the market. However, real estate investors don’t need to panic because the odds are low that a housing market crash 2022 will happen. The said forecast is based on concrete real estate data and trends.

Nonetheless, while experts believe that a housing market crash is not expected any time soon, investors still need to be prepared. After all, there are signs of another possible economic slowdown. As the real estate market is constantly changing, it will continue to fluctuate every now and then. The best way to protect investors from a recession or an unforeseen development is to be prepared.

To get access to our real estate investment tools, sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.

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Amanda Rodriguez

Amanda is passionate about everything real estate and takes pride in her ability to help investors navigate the market with detailed and comprehensive guides.

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