Is the U.S. on the Brink of Another Housing Crisis? Warning Signs You Can't Ignore

Could we be heading towards another nationwide housing crisis? Some signs in our economy might be pointing to a resounding "yes."

Despite the constant buzz about a strong housing market, low inventory, and real estate being a surefire investment, cracks are forming that suggest another housing downturn could be just around the corner.

In a recent interview on the YouTube channel Thoughtful Money, housing analyst Melody Wright expressed her shock at how rapidly the housing market seems to be deteriorating. For example, we’re currently experiencing record-low transactions during what’s usually the busiest time for home sales. Inventory is up year over year, and perhaps the most concerning sign is the spike in delinquencies, with rates in some areas even higher than during the 2008 financial crisis.

So, what’s really happening? Are we sleepwalking into another housing crisis? Let’s break it down with seven warning signs that should be on your radar.

Warning Sign #1. Unaffordability

Housing prices have reached an all-time high, with the median home price now at $434,000. At a 6.5% interest rate, you’re looking at about $4,000 per month in mortgage payments, including taxes, insurance, utilities, and maintenance. To comfortably afford this, you’d need to be earning roughly $68,568 per year before taxes. This level of unaffordability is simply unsustainable. Something’s got to give, and the cracks in the housing market are becoming increasingly evident. So, are we headed for another housing crisis? What do you think? 

Warning Sign #2. Rising Property Taxes

The $4,000 monthly payment needed to afford a median-priced home is a moving target, thanks to rising property taxes. As home prices go up, so do property taxes. Many homeowners are already feeling the pinch, with some seeing their property tax bills double or even triple. And if you can’t pay your property taxes, the taxing authority can sell your home. It's a harsh reality that raises the question: Do you really own your home if it can be taken away for unpaid taxes?

Warning Sign #3. Rising Delinquencies

Melody Wright noted a 19% increase in delinquencies over 30 days, a jump we haven’t seen since the housing bubble in 2007. If homeowners go 30 days late on their mortgage, it triggers a costly process for the banks, and it’s a decision that homeowners don’t make lightly. This rise in delinquencies is a troubling sign that more people are struggling to keep up with their mortgage payments.

Warning Sign #4. Rising Inventory

Housing inventory is up significantly year over year. The media reports a 23.4% increase, but some data suggests it’s even higher, closer to 29% or more. This increase is happening all over the country, not just in traditionally high-growth areas like Florida and Texas. Rising inventory could indicate that more homeowners are looking to sell, possibly due to financial strain.

Warning Sign #5. Prices Have Peaked and Sellers Are Motivated

Housing prices peaked in 2022, and now sellers are becoming highly motivated. Many homeowners are waking up to the reality of higher costs—whether from increased insurance, taxes, or other expenses—and are looking to sell before prices drop further. This motivation to sell could lead to a decrease in home prices as more homes flood the market.

Warning Sign #6. Layoffs and Their Impact on Housing

Even homeowners with low-interest mortgages aren’t safe from the economic pressures of inflation, higher costs, and potential layoffs. If widespread layoffs occur, many homeowners may struggle to keep up with their payments, leading to more delinquencies and foreclosures.

Warning Sign #7. Institutional Selling

Institutional investors, who were big buyers in the housing market on the way up, have now stopped buying. If these institutions decide to start selling their properties, it could flood the market and drive prices down even further. These investors have no emotional attachment to these homes, making them more likely to sell quickly if they face financial trouble.

Conclusion:

The housing market is showing signs of strain, and these seven warning signs suggest that we could be on the brink of another crisis. What do you think? Are we headed for another housing downturn? Share your thoughts in the comments.