How To Predict a Market Crash From Miles Away

The housing market will always have its ups and downs, but some fluctuations are much more dramatic than others. Homeowners and prospective buyers are often worried about the possibility of a market crash. These conditions can prevent new buyers from entering the real estate market and can create a massive financial burden for current homeowners.

It’s impossible to predict a market crash with complete accuracy. However, you can keep an eye out for signs of a decline in the market. Here are some key indicators of an upcoming real estate market crash:

Tightening Credit Market

One of the best but most overlooked indicators of a market crash is a tightening credit market. The condition of the credit market is an overall reflection of the economy, and as the market becomes more cautious, you can expect to see a major decline in real estate.

Credit markets are highly volatile. A sudden shift in the credit market can have a dramatic impact on both residential and commercial real estate investing. In the last decade, the credit market has been very generous. There has been a decline in risk aversion, skepticism, and due diligence. Investors have been more likely to buy a greater number of assets with lower quality.

This idea of abundance cannot last forever, though. There has recently been a much stronger fear of loss, so the market has become significantly tighter. Residential mortgages usually have a 30-year lifespan, so investors think long-term when lending. However, many commercial real estate loans have much shorter timelines. If investors can’t guarantee they’ll profit from these short-term loans, they won’t lend the money. As investors become more and more anxious about their risk of losing money, the real estate market will continue to slow down.

The credit market is largely driven by psychology. When investors feel a sense of prosperity, they lend more generously. When they have a fear of loss, they tighten up their lending practices. Then, as this creates a noticeable change in the market, more and more investors follow suit. This leads to a drastic and sudden downturn in the market.

Home Pricing Plateau

Home Pricing Plateau

A clear plateau after a period of rapidly rising housing prices is a key sign that the market will take a downward turn. While this may not indicate a complete market crash, it often occurs when the market is shifting. Houses are an appreciating asset, but prices can’t dramatically climb year after year without a plateau or decline. When fewer people are able to buy, sellers lower their prices to generate interest.

Rising Interest Rates

Rising Interest Rates

Low-interest rates are a strong motivator for people to buy homes. As rates rise, the same homes become too pricey. High mortgage rates prevent many people from purchasing a property because the interest payments can become so unmanageable.

The overall economic conditions can play a role in rising interest rates. During times of economic concern, mortgage rates tend to decrease because investors feel that mortgage bonds are safer than other loans. When the economy is growing, though, lenders increase their rates. They only have so much capital to lend, and there’s typically a lot of demand for mortgages in a growing economy. The increased competition drives up interest rates.

Rising interest rates also contribute to the plateau of home prices. If a seller can’t get offers because rates are too high, they may lower their asking price to compensate. However, if the housing market crashes, banks become very cautious about mortgage lending. They may further increase rates to protect themselves, which results in sellers dropping their prices even more. Like the general economy, the real estate market constantly cycles through highs and lows and corrects itself when it reaches either extreme.

More Borrowers Paying PMI

More Borrowers Paying PMI

Buyers who make a down payment of less than 20% typically have to pay private mortgage insurance (PMI), which protects their lender in case of foreclosure. An increase in buyers paying PMI is a warning sign for the real estate market for a couple of reasons. First, borrowers who pay PMI are not in as strong of a position as those who are exempt. When more people pay PMI, it indicates that borrowers may be purchasing homes before they’re financially ready.

Also, an increase in borrowers with PMI means that more homeowners are at risk of going underwater on their mortgages. If the market declines and you didn’t make a large down payment, you may end up owing more than you can sell your home for. In the event of a market crash, many homeowners will be stuck in houses that they can’t sell because they owe too much.

More Foreclosures

More Foreclosures

An increase in foreclosures is an obvious yet frightening sign of a real estate market crash. When more and more people are unable to pay their mortgages, there’s almost always an unfavorable trend in the market. In many cases, foreclosures happen because homeowners go underwater on the loan or can no longer afford their payments. Subprime mortgages are not as common as they once were, but they can result in foreclosures as well.

Foreclosures also create problems for the housing market because they sell at lower prices. Sellers may have to drop their own asking prices to compete with the foreclosures, which can drive down the prices overall.



No one can predict a housing market crash with complete certainty, but there are plenty of signs to watch out for. Rising interest rates, declining home prices, and shifting economic conditions can all indicate an upcoming crash. To protect your own finances, keep a careful eye on the market and avoid making any impulsive decisions. If you’re nervous about the future of the market, consult with a trusted expert about your options..



Don’t forget the Home Buying and Selling Guides !

Never miss an issue by subscribing below and I look forward to speaking with  you soon about your free Home Preparation and Market Analysis consultation!

Michele Hudnall

About the Author

In the vast tapestry of Northern Virginia, Michele's roots run deep, with an unyielding passion to help her clients make smart moves. This region is a sprawling masterpiece, each corner radiating a unique personality that caters to diverse lifestyles. Michele's unwavering mission is to delve into the essence of her clients' aspirations, meticulously curating the perfect match between their dreams and the vibrant tapestry of Northern Virginia, even as lifestyles evolve and dreams take new forms. 

Armed with a formidable arsenal of market analysis, strategic prowess, and unrivaled consulting expertise, Michele empowers her clients to navigate the ever-shifting currents of the real estate landscape. She unveils the intricate dynamics and fierce competition that shape the market, providing her clients with a profound understanding that fuels their success. While the emotional tides of property transactions can easily sway hearts, Michele stands unwavering as the guardian of her clients' best interests, ensuring they relish every precious moment along the way.

Michele has forged an alliance with the industry's trailblazers, joining forces with Real Broker, LLC, a groundbreaking startup that challenges the very fabric of conventional practices. With an expanding network of exceptional agents nationwide, armed with cutting-edge resources, Michele remains at the vanguard of the evolving real estate industry, poised to transform dreams into concrete reality. 

Discover the unparalleled service, the unwavering commitment, and the magnetic spirit that will guide you towards finding not just a home, but a sanctuary where dreams flourish. 

Are you ready to unlock the door to your NVA destiny?