Is a Housing Market Crash Coming? Here's What Dave Ramsey Thinks

If you are thinking of buying a home, you may be hoping for a market crash. Home prices rose rapidly during the pandemic and mortgage interest rates have also been rising this year, so it may feel difficult to purchase a property under current conditions. But, if a crash happened and prices plummeted, houses would become more affordable. While some people believe a crash may be coming because they fear the real estate market became a bubble due to record low interest rates during COVID-19, this is not necessarily going to happen. In fact, if you listen to personal finance expert Dave Ramsey, no crash is likely to come at all for the foreseeable future. Here's why.

Dave Ramsey has a clear answer to the question of whether a housing market crash is imminent
Ramsey's opinion on whether a market crash is coming soon is unequivocal and very firm. "If you're in a position to buy or sell, don't wait on the 'Housing Market Crash' because it's not coming," the Ramsey Solutions blog reads.

Whether you're a buyer who is hoping for a crash or a seller who is fearing one, it's helpful to understand why Ramsey has such a definitive position on the direction of the real estate market. That's because he has a lot of data to back up his belief that prices are not going to fall anytime soon.

Here's why Ramsey doesn't believe a crash is coming
There are several key reasons why Ramsey thinks the housing market is not going to experience a major downturn anytime soon.

The first reason is that most projections suggest home prices are going to continue to rise over the coming year. While the increase won't be anywhere near the double-digit rise in prices that occurred in 2018 or 2019, it is expected costs will go up around 3% to 4% over the course of 2023. And this estimate makes sense because, as Ramsey points out, that "gets us back to the average increase for residential single-family homes the last 50 years."

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Ramsey also explained that supply and demand will drive the price of houses (and everything else). And demand is high while supply of homes is low. "Since we've had a shortage of homes for about the last two decades, plus the demand is high, the prices are therefore high." The supply dipped even more during the pandemic when no one wanted to sell a property and many people wanted to buy one as a result of record low mortgage rates.

But even post-pandemic, Ramsey does not believe that supply is likely to meet the demand anytime soon. There have been few new homes built in recent years, a lumber shortage cut construction rates further, and millennials have entered their prime home-buying years. "That's 12 million more households wanting to own a home today," Ramsey said. "This makes for too many buyers chasing too few houses."

Since all these points are valid ones, there's reason to suspect Ramsey is right about whether a crash is imminent, although no one can predict that with certainty. For that reason, those who are hoping to buy a home soon may not want to put off the purchase in hopes of a crash because that could backfire if high demand and continued low supply push prices even higher.

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Rates Rising, Demand Weakens

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.65% from 5.45%.
"Last week's purchase results varied, with conventional applications declining 2% and government applications increasing 4%, which is potentially a sign of more first-time homebuyer activity," said Joel Kan, an MBA economist.
Mortgage demand continues to weaken, still right around a 22-year low, but there was a sign in the weekly numbers that first-time buyers may be slowly returning.
Mortgage applications to purchase a home fell 1% last week compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Volume was 21% lower than the same week one year ago. There was, however, a jump in demand for loans offering lower down payments.
"Last week's purchase results varied, with conventional applications declining 2% and government applications increasing 4%, which is potentially a sign of more first-time homebuyer activity," said Joel Kan, an MBA economist.
He also noted that the average purchase loan size continued to trend lower, as homebuying at the high end of the market weakens.
Mortgage rates increased for all loan types last week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) rose to 5.65% from 5.45%, with points climbing to 0.68 from 0.57 (including the origination fee) for loans with a 20% down payment.
As a result of the sharp increase in rates, demand for loan refinances dropped 3% for the week and were 83% lower than the same week one year ago.
Borrowers also moved away from adjustable-rate loans, which are no longer offering the bargains they did just a few months ago.
"The spread between conforming fixed-rate loans and ARM loans narrowed to 84 basis points from over 100 basis points the prior week," Kan said. "This movement made fixed rate loans relatively more attractive than ARMs, thereby reducing the ARM share further from highs seen earlier this year."
Mortgage rates moved even higher to start this week, as the stock market sold off on renewed fears of a recession. Investors are waiting for what they expect to be hawkish sentiment from the Federal Reserve at a meeting later this week in Jackson Hole, Wyoming.

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How the Market is Affecting Rate Increases

U.S. equities were mixed on the week as a blockbuster jobs report had investors bracing for the Federal Reserve to raise rates sharply at its next meeting.

The S&P 500 index rose 0.4 percent to close at 4,145 in the five-day period for a third straight week of gains. The Dow Jones industrial average lost 0.1 percent on the week and the Nasdaq gained 2.2 percent.

Employers added 528,000 jobs in July — far more than economists had estimated — and the unemployment rate dropped to match a five-decade low of 3.5 percent. The United States has now recovered all pandemic-related job losses, with payrolls back to the pre-pandemic level. But the job participation rate fell and wage growth stayed at 5.2 percent.

After the report Friday, Treasury yields surged and swap contracts showed that traders think another rate increase of 75 basis points is now more likely than a 50-basis-points one when the Federal Reserve meets in September. 

“The jobs number has the market and investors questioning where that recession is and when it will take hold, so some of the conviction levels are somewhat lower,” Keith Lerner, co-chief investment officer at Truist Advisory Services, said in an interview. “And I think that’s offsetting the other side of the equation, which is that the Fed will have to be more aggressive.”

Fed speakers from around the nation said they had not yet seen persuasive evidence of cooling prices that would suggest inflation was being tamed. Yet data from the Institute for Supply Management showed sharp declines in prices paid by both service providers and manufacturers in July, suggesting an easing in supply pressures.

Roughly 90 percent of the S&P 500, as measured by market capitalization, has reported second-quarter earnings. Analyst estimates suggest that profits from S&P 500 firms are on pace to increase about 7.6 percent for the April-to-June stretch vs. the same quarter a year ago.

Shares of Uber Technologies surged 37 percent on the week, the most ever, after quarterly results showed robust demand as people return to pre-pandemic travel and commute routines. On the flip side, Caterpillar slumped more than 6 percent on a slowdown in China sales.

On Wednesday, consumer price index data is projected to show that inflation rose 8.7 percent from a year earlier in July, down from the four-decade high of 9.1 percent in June.

The Treasury will sell $54 billion of 13-week bills and $42 billion of 26-week bills on Monday. They yielded 2.566 percent and 3.083 percent in when-issued trading, respectively. It will also auction $42 billion of three-year notes Tuesday, $35 billion of 10-year notes Wednesday and sell four- and eight-week bills Thursday.