Summary of "The Housing Market Could “Stall” for Years"

The Housing Market Could “Stall” for Years

Market Context & Macroeconomic Variables

The housing market is currently at a crossroads with several possible future paths, including a crash, meltup, great stall, or a black swan event.

Primary variables influencing the housing market:

Affordability: The key driver affecting both supply and demand. Affordability is at its worst in 40 years (since the early 1980s) and depends on three subvariables:
- Wages (income growth)
- Home prices
- Mortgage rates (about 80% of US home purchases are mortgage-financed)
Labor Market / Unemployment Rate: Serves as a proxy for economic health. Needs to remain relatively stable (not spike to 8-10%) for a healthy housing market.
Secondary factors: Demographics (aging boomers), inventory, building trends, migration — these have less impact compared to affordability and labor market conditions.
AI’s impact: An unknown variable with potential macroeconomic effects on the labor market.

Four Housing Market Scenarios

Crash (15% probability)
- Triggered by persistently low affordability (high mortgage rates, stagnant wages, high prices) combined with rising unemployment.
- Could resemble stagflation with rising inflation and mortgage rates remaining high.
- Would lead to increased mortgage delinquencies and foreclosures.
Meltup (25% probability)
- Rapid price acceleration similar to the COVID-era surge.
- Requires significant improvement in affordability, mainly through mortgage rates dropping substantially (to ~5% or lower).
- Possible if:
  - A recession lowers bond yields, pulling mortgage rates down.
  - Quantitative easing resumes (Fed buying mortgage-backed securities), potentially starting 2026 with a new Fed chair.
- Currently, Fed Chair Jerome Powell has ruled out buying mortgage-backed securities, but political changes could alter policy.
Great Stall (50% probability) — Most Likely Scenario
- Housing prices stagnate or decline slightly; affordability improves slowly over 2-4 years.
- Wages grow modestly (currently above inflation but slowing).
- Mortgage rates may decline modestly (currently near lowest in a year).
- Market lacks urgency/distress, so slow resolution of affordability issues.
- No strong price appreciation expected (no healthy 3-4% annual growth in next 1-2 years).
Black Swan Event (10% probability)
- Unpredictable, high-impact events (e.g., 9/11, COVID).
- Increased geopolitical and global economic uncertainty raises this risk from the usual 2-3% to 10%.

Investing Strategies & Portfolio Construction Framework

Overall Approach: Prepare for the Great Stall but Protect Against Downside

Take What the Market Is Giving You
- Focus on increased inventory, better deal flow, and improved negotiating leverage.
- Market is less competitive than recent years, allowing for patience and selectivity.
Have Appropriate Short-Term Expectations
- Expect modest returns in the short term (singles/doubles, not home runs).
- Real estate investing is a long-term game; position for steady cash flow and eventual appreciation.
- Avoid expecting big net worth jumps within 2-3 years.
Adopt a Risk-Off Investing Approach
- Avoid aggressive bets or maximizing leverage.
- Focus on fundamentals: quality assets, great locations, reasonable prices.
- “Underwrite scared”: assume no appreciation and flat or slow rent growth for next 1-2 years.
- This approach protects against downside risk if a crash occurs.
- Even in downturns, cash flow, amortization, and tax benefits provide portfolio resilience.
Think About Upsides / Optionality
- Invest in cash-flowing properties.
- Identify 2-3 potential “upside” factors per deal to boost equity, such as:
  - Buying below market comps
  - Properties in the path of progress
  - Zoning or value-add opportunities
  - Owner-occupied strategies
  - Locations with rent growth potential
- These optionalities can convert singles/doubles into triples/home runs over time.

Key Numbers & Timelines

Affordability is at its worst level in 40 years.
Mortgage rates need to drop to approximately 5-5.5% for a meltup scenario.
Probability estimates:
- Crash: 15%
- Meltup: 25%
- Great Stall: 50%
- Black Swan: 10%
Potential Fed policy shift expected in May 2026 with a new Fed chair appointment.
Housing prices are expected to stagnate for 2-4 years.

Recommendations & Cautions

Prepare for a slow, gradual restoration of affordability rather than a dramatic crash.
Be conservative in underwriting and investment assumptions.
Use the current environment to negotiate better deals and be patient.
Protect against downside risk while positioning for upside optionality.
Recognize that no scenario currently supports healthy 3-4% annual price appreciation in the near term.
Stay alert to macroeconomic changes, inflation trends, and Fed policy shifts.

Disclaimers

The presenter explicitly states: “I do not know what is going to happen” and emphasizes probabilities, not certainties. Advice is based on professional analysis but is not guaranteed. Personal risk assessment and conservative underwriting are encouraged.

Presenter / Source

Presenter: Dave (likely Dave from BiggerPockets, a real estate investment education platform)
Platform: BiggerPockets community (YouTube and Spotify)

Summary

The housing market faces uncertainty with three main scenarios: a crash, a meltup, or a great stall, with the great stall (a prolonged period of stagnant prices and slow affordability improvement) being the most probable at 50%. Key variables are housing affordability (wages, prices, mortgage rates) and the labor market (unemployment). Investors should adopt a risk-off, conservative approach focusing on cash flow, deal selection, and optionality, preparing for modest returns in the near term while protecting against downside risks. A potential Fed policy shift in 2026 could alter the landscape, but for now, patience and prudence are advised.