Evidence of a housing market crash continues to grow as new data shows a record number of Americans are interested in selling their homes. This may prove to be the beginning of the end as it pertains to a possible housing recession.
According to analysis from luxury real estate platform RubyHome, searches on Google (owned by Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL)) for “sell my house” jumped 147% in July, the “highest level in internet history for America.” This is troubling evidence that the housing market may soon see a staggering new wave of home listings. With home purchases having plummeted in recent months, the conditions could be setting up a substantial downtick in home values.
The limited supply of homes for sale has been something like the last line of defense against a U.S. housing downturn. Indeed, even as mortgage rates climbed as high as 6% earlier this year and rising inflation pushed many would-be homebuyers out of the market, real estate values continued rising for most of 2022 — largely off the back of pinched housing supply.
From March 2020, home prices have climbed nearly 40%. As millions of Americans collectively went inside, available homes for sale and construction both plummeted. Combined with rock-bottom mortgage rates that raised demand for homes, this set the stage for unbridled home price growth.
However, with a troubling number of Americans now looking to sell their homes, housing may fall sooner than many had previously predicted.
Housing Market Crash Looms Large as Americans Sell Homes
Home prices fell 0.77% from June to July, the first drop in about three years. Many economists never expected home values to dip into the red. Now, it seems the “dip” may end up being a plunge.
Limited home supply was likely one of the only barriers to a drop in prices. After all, if there is a limited number of homes for sale to start — even given the fall in housing demand — basic economics tell us it’s unlikely for prices to substantially drop. Many economists predicted home price growth to only slow, not reverse course.
As per the U.S. Census Bureau, the country currently has a 10.9 month supply of new homes for sale. This is nearly double the level recorded in December 2021 and increasingly close to the peak 12.2 month supply recorded amid the 2008 recession.
What happens when a slowed housing market experiences a flood of new home listings? History tells us real estate may be prime for a sharp pullback.
Economists, Analysts Clash on Home Prices
Everyone agrees housing has largely run too hot for too long. However, many experts are split over the potential severity of a slowed market.
On the bearish side of things, housing analyst Ivy Zelman — one of the earliest predictors of the 2008 housing crash — believes U.S. home prices may fall nearly 9% over the next two years. This would make for one of the sharpest home price drops in U.S. history, although compared to the 27% drop during the Great Recession, it would only qualify as a housing correction and not a true crash.
Meanwhile, Zillow believes the U.S. is still primed for growth, upwards of 2.4% over the next year. That’s quite aways away from its previous 7.8% forecast, but still reflects a market that’s adding value. Goldman Sachs is also tentatively bullish on home prices, projecting a more than 5% increase over the next two years.
Regionally, of course, this means some sections may suffer more acutely. According to Moody’s Chief Economist Mark Zandi, 187 “overvalued” local markets may fall as much as 20%.
Altogether, housing is currently an industry in flux. With a record number of Americans considering selling their homes, notions of a housing market crash remain extremely relevant.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.