Are We Headed For A Housing Crisis?

The memories of the 2008 housing crash and subsequent economic fallout are still fresh. Industry experts and homeowners are not ignorant to the fact that another bubble could be imminent. The housing market is supposed to operate cyclically, in fact, dynamic shifts in prices and sales are indicative of a typical housing market environment. Market bubble speculations are still just that–speculations; some experts think a crash is imminent while others are not quite ready to sound the alarm. Let’s take a step back and examine the state of the U.S. housing market.

The state of the housing ecosystem

Every year the Joint Center for Housing Studies at Harvard University releases an in-depth look at the trends and market behaviors impacting the overall health of real estate. One interesting finding from this year’s report showed that housing construction has tapered off in recent months. With less construction occurring there are fewer new-entrants to the market, thus tightening supply.

Curbed recently referenced this same study and noted that the slowing down of construction is occurring at the same time more Americans are looking to buy homes. For years, industry stakeholders have spoken about younger Americans–namely Millennials–not buying homes. However, this demographic is stepping up their home-buying interest at a faster clip than older generations.

Millennials, scarred by the repercussions of the 2008 housing bubble, have famously put off purchasing homes. Now, after years of saving, many are ready to make the leap from renter to homeowner–even choosing to skip over the starter home stage.

Simultaneously, older generations who historically sell their homes around the age of retirement are staying put. With the age of retirement increasing, older Americans are choosing to live independently for longer; instead of relinquishing their homes back onto the market to make room for younger buyers ready to settle down, Boomers are choosing to stay put.

The convergence of those three social and economic factors is straining the overall housing demand. But it’s not just lifestyle shifts that are impacting the stability of the market. A recent Forbes op-ed noted the contribution of rising interest rates and default rates’ effect on the foundation of the industry as a whole. Interest rates are currently at a four-year high, and although national default rates dropped to a 12 year low in 2017, specific market default rates (including New York) are at their peaks. When assessing the health of the housing ecosystem, many industry experts believe these factors are red flags warning of the dangers to come.

Are certain cities more primed for a crash than others?

With younger generations preferring urban locations over suburban locations to live and work, there has been a steady rise in prices across specific metropolitan areas. In these desirable locations, housing prices and the cost of living have skyrocketed and outpaced wage growth; this makes it increasingly difficult for individuals to afford down payments and mortgages. National Mortgage News recently delved into the cities on the brink of a bubble, explicitly mapping out the affordability index and the gap between growth in prices and wages. Many of these cities are also home to tech and startup hubs, which are attracting newer, younger talent who cannot afford the rise in housing prices. For example, in Seattle there is 7.05% gap between home prices and wages; in Portland, there is an 8.05% gap, and in San Francisco, the difference has extended to 6.45%.

Are there any solutions that can save the crisis?

As mentioned earlier, housing market peaks and valleys are normal. However, that does not mean that there isn’t room for new market innovations and shifting trends to make an impact on sales. The blockchain is an example of one rising technology that has the potential to streamline industry inefficiencies, and ultimately, bring down additional homeowner costs that occur as a result of those inefficiencies. As an immutable, secure, and transparent public ledger, applications built on the blockchain can connect buyers directly with sellers, offer more precise insights into a listing’s history, and ultimately diminish the costs demanded by a third-party brokerage.

Deedcoin is a blockchain real estate platform aiming to make the real estate process more affordable to individuals by streamlining transactions on the blockchain. Typically, commission fees extend as high as 6%, which is not insignificant when added to the other upfront costs of purchasing a home. Affordability is already an issue across many major housing markets, and the sky-high commission fees often price interested buyers out. Through Deedcoin’s platform, all transactions are made via the DEED cryptocurrency; as a result of transacting on the blockchain, commission rates dwindle down to 1%.

The rise of decentralized technology may not be able to alter or reverse the economic trends affecting the state of the housing market, but platforms designed to empower individual buyers certainly have the power to make home ownership more attainable across markets.