In 2007, the economy faced a housing market crash, a direct impact of the Great Recession. Following the dotcom times, the value of real estate began to rise, thereby fuelling a rise in homeownership.
When Interest Rates Are High Enough, Homeownership Is Put Out Of Reach
Interest rates and the spread of credit play a crucial role in the availability of credit to build houses. Most homebuyers do not pay capital upfront, mainly because they don’t have half a million dollars to invest in real estate.
Identifying housing market indicators is key to predicting housing market crashes. Indicators like building permits, housing starts, and new home sales data are released once every month, available for free download.
One of the most proven ways to identify signs of a housing market crash is to compare rental values to capital values. When the underlying properties of the economy change, the rental and capital values simultaneously change.
The commodity price of lumber could be a great indicator of a housing market crash. When the prices of lumber crash, it usually coincides with peak house prices.
The S&P 500 Index is the main measure of the US’s economic health, made up of the top 500 blue-chip companies – some of them being housing-related. Investors often use global stock markets to express their opinions on real estate.
Real Estate Investors Gauge Housing Inventory In The Market
Housing inventory indicates the total number of unsold homes with developers in the housing market. In a usual market scenario, the housing inventory can be seen to remain stable.
Compare Wages To Capital Values To Predict The Housing Market Crash
Another primary metric of affordability is to compare the annual wages of an average person in a particular neighborhood with the capital values observed in the neighborhood. This will give us the number of years a person has to work to buy a house in the area.