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When is the Housing Market Going to Crash?

By Bank Deets · · Updated

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Everyone wants to know when the housing market will crash, or at least see a correction. Economists and analysts make predictions every year, but no one can reliably time a crash. Here's what drove prices up, what has changed and what could cause a correction.

The housing market was extremely hot in 2020 and 2021, and some people compared it to the market before the 2008 crash. Many expected prices to fall when the COVID-19 pandemic arrived, but the opposite happened. Inventory dropped, homes sold quickly and some buyers bid without seeing the house in person.

In early 2021, Redfin, an online real estate brokerage, reported that about 42% of homes were selling above list price.

That activity worried buyers and economists alike. Was the demand sustainable, or was it a bubble that would pop the way it did in 2008?

CoreLogic, a property data firm, reported that national home prices were up about 10.4% year over year in February 2021, one of the fastest gains since 2006.

So, what factors are driving the massive surge housing prices?

These were the main forces behind the 2020-2021 surge. Some still affect the market today.

1. Extremely low interest rates

When the pandemic hit, the Federal Reserve cut short-term interest rates to near zero, and mortgage rates fell to record lows. Many borrowers with good credit locked in 30-year mortgage rates below 3%. Cheap borrowing pushed demand for homes higher.

That has changed. Freddie Mac reports that the average 30-year fixed mortgage rate was 7.40% as of October 15, 2026, more than double the lows of 2021.

2. Supply constraints

When supply is low and demand is high, prices rise. In 2020 and 2021, construction delays and material shortages slowed new building.

Many owners also chose not to sell during the pandemic, so fewer existing homes were listed. Since rates rose, many owners with low-rate mortgages have been reluctant to sell and give up their rate, which keeps supply tight.

3. Injections of capital into the economy from stimulus bills

Several federal relief bills passed in 2020 and 2021 put trillions of dollars into the economy. While many people lost jobs, many others kept their income or shifted to working from home, and some had more money to put toward a home.

4. Human migration

Remote work let many people choose where to live. When work no longer tied people to an office, many moved to places they preferred and bought homes there.

Smaller cities and resort towns saw demand jump. Places like Bend, OR, Bozeman, MT, and Jackson, WY became popular, and Austin, TX drew many new residents. Many of these markets had limited housing and saw prices rise sharply.

​How much over asking should I offer on a home?

There's no single right number. Bidding wars were common in 2021, but how much over asking to offer, if anything, depends entirely on your local market and the specific home.

With higher rates, many markets have cooled, and buyers in some areas can negotiate below list price. A local real estate agent can show you recent comparable sales so you can make a competitive offer you can afford.

​What will cause a housing market crash or correction?

Now for the hard part: what could cause a crash or correction? Several factors matter.

1. Increase in interest rates

Higher rates reduce what buyers can afford, which cools demand. That happened: mortgage rates rose sharply starting in 2022 and remain far above their 2021 lows.

So far, higher rates have slowed price growth rather than causing a national crash. The Federal Housing Finance Agency reports that U.S. house prices rose 2.1% between the second quarter of 2025 and the second quarter of 2026, and prices rose in 46 states and DC. Local markets can still fall even when the national average rises.

2. Increase in supply of houses

More homes for sale, whether from owners listing or from new construction, tends to slow price growth. Builders ramped up construction after the pandemic, which adds supply over time.

Is extra supply likely to cause a crash on its own? Not usually. A crash typically requires forced selling, such as many owners defaulting at once. But markets that saw heavy building can see prices dip if demand weakens.

3. Mortgage defaults

A key difference from 2008 is that many owners today have substantial home equity. Owners with equity are much less likely to walk away from a mortgage, and they can sell instead of facing foreclosure if they hit hard times.

Lending rules also tightened after 2008. Under the CFPB's ability-to-repay rule, most lenders must make a reasonable, good-faith determination that you can repay a mortgage before approving it. That has reduced the risky loans that fueled the last crash.

These protections don't rule out falling prices, especially in local markets or during a recession with heavy job losses.

The Bottom Line: Will the housing market crash this year?

No one can predict a crash with certainty. For now, national data points to slow price growth rather than a crash: high mortgage rates have cooled demand, while tight supply and strong owner equity have supported prices.

Whatever the market does, buy only if the monthly payment fits your budget, and keep an adequate emergency fund in case your income or expenses change.

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