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7 Popular Myths The Media Promotes About The Housing Crisis

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Think you know what’s really going on in the housing market? Get ready to have your assumptions challenged. You might have heard Grant Cardone (a big YouTube real estate investor) declare that lower interest rates will bring down home prices, right? Well, I’m about to show you why that’s dead wrong, along with six other popular beliefs that just don’t hold up when you look at the data.

Today, we will bust seven housing market myths that many people, even some experts, believe. These misconceptions aren’t just harmless – they’re shaping decisions that could cost you big time in today’s real estate market. You can watch me address these myths by watching the video with animation above or reading the content below.

Here’s the thing: a real home affordability crisis is happening, and it’s not for the reasons you might think. By the end of this post, you’ll have the data-driven insights you need to navigate this tricky market. Understanding these 7 myths could be the difference between making a smart real estate move and leaving money on the table. Let’s dive in.

Myth 1: Lower Interest Rates Mean Lower Home Prices

Now, about those interest rates everyone’s obsessing over. Grant Cardone and others are shouting that lower rates will bring down home prices. But here’s the kicker – historical data tells a completely different story. Ready to see how lower rates might actually push prices even higher?

Let’s dive into what Grant Cardone is claiming. He says,

“When interest rates come down, mortgage applications also go up, and people will start selling their homes.” ~ Grant Cardone 

Sounds logical, right? But here’s where Cardone’s theory falls apart. Sure, lower rates do typically lead to more mortgage applications. And more people will put their homes on the market, which increases supply. But that’s the end of the good news. Because those sellers become buyers, so every unit of supply is neutralized by a new unit of demand. That’s zero impact, except buyers are now armed with more purchasing power.

Think about it. Lower rates mean buyers can afford higher-priced homes for the same monthly payment. This boosts their purchasing power, allowing them to bid more aggressively. And in a market already short on inventory? That’s a recipe for price increases, not decreases.

Mortgage Rates Versus Home Prices

History backs this up. Historically, periods of lower interest rates have often coincided with rising home prices. It’s simple supply and demand. More buyers competing for a limited number of homes pushes prices higher.

The relationship between the median home price and mortgage interest rates

Need proof? Look at what’s happened since January 2020. Despite all the rate fluctuations we’ve seen, U.S. home prices surged with double-digit annual appreciation. That’s right – even with rates bouncing around, prices kept climbing.

I have highlighted three points in the graph:

  1. Mortgage interest rates (in red) generally fell for 25 straight years from 1981 to 2005. During that time, home prices (in blue) increased by 267%!
  2. Mortgage interest rates generally fell from 2009 to 2016, yet prices grew by 49%. 
  3. Mortgage interest rates generally fell from 2018 to 2022, hitting an all-time low, and home prices exploded by 30% in just over four years.

So, what’s the real takeaway here? Lower rates don’t automatically mean lower prices. In fact, they often stimulate demand, potentially driving prices even higher. This is crucial to understand in today’s market.

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Myth 2: Lower Rates Will Increase Housing Supply

Now, let’s tackle another misconception that’s been making the rounds. You’ve probably heard that lower interest rates will flood the market with eager sellers. But here’s the kicker – what if I told you lower rates might actually keep people in their homes longer?

This belief stems from the idea that lower rates make it easier for homeowners to sell and move. Sounds logical, right? But it overlooks a crucial factor: the ‘rate lock’ effect. Many current homeowners are sitting pretty with historically low mortgage rates. They’re not exactly jumping at the chance to give those up.

Think about it. If you’ve got a 2.5% mortgage rate, why would you sell and buy a new home at a 6% rate? Even though your house has increased in value, your monthly payments would likely skyrocket. As one recent reader commented, “If my mortgage payment is lower than what I would have to pay if I rented a place, then I’m just going to stay in my house.”

This ‘rate lock’ phenomenon (the lock-in effect) is exacerbating an already severe decline in home sales. We’re not just talking about a temporary blip here. Years of underbuilding have left us millions of homes short of what we need for a balanced market. And here’s the thing – this shortage can’t be fixed by simply shuffling existing homeowners around.

Consider this: even if lower rates did encourage more people to sell, those sellers would still need somewhere to live. They’d become buyers in the same tight market. More buyers, more sellers, but no net increase in available homes. We’re running in circles here, folks. You cannot create more inventory in the resale market, it must come from building more homes.

The hard truth? Lower rates alone won’t solve our supply problem. What we really need is a significant increase in new home construction. Without it, we’re just rearranging deck chairs on the Titanic of housing supply. 

Myth 3: Mortgage Rates Will Return to Pre-Pandemic Levels

Speaking of housing market myths, let’s tackle a big one. Remember those rock-bottom mortgage rates from a couple years ago? Many folks are sitting on the sidelines, convinced they’ll return. But what if I told you that waiting for rates to drop could cost you big time?

Here’s the deal: experts are predicting only modest declines in mortgage rates, not a return to pre-pandemic levels. This isn’t just about the Federal Reserve’s decisions. Mortgage rates are influenced by a whole bunch of factors including economic conditions, inflation, and housing demand.

Mortgage Rate History

Let’s look at history for some perspective.

The average 30-year fixed mortgage rate over the past fifty years is 7.7%

Mortgage rates have been on a wild ride over the years. They hit highs of over 18% in the 1980s and below 3% during the pandemic. But here’s the kicker: those ultra-low rates we saw recently? They were the exception, not the rule. The average 30-year fixed mortgage rate over the past fifty years is 7.7%. Today’s higher rates are actually lower than average!

A book titled “This Time Is Different: Eight Centuries of Financial Folly” suggests we might be poised for 40 years of increasing interest rates. It explains how all the experts of an era got it wrong when forecasting a significant change in rates. When asked why they would not follow the long-term cycles, they always had a way of explaining why “this time is different!”

So, what’s the takeaway here? Waiting for rates to drop back to pandemic lows could be a costly mistake. The housing market isn’t standing still while you wait. Prices could keep climbing, potentially outpacing any savings you might get from a slightly lower rate. And if rates do fall, you can always refinance.

Remember, it’s not just about the rate but the overall cost of homeownership. A slightly higher rate on a lower-priced home could be better than waiting for rates to drop while prices keep rising.

Myth 4: Remote Work Has Permanently Shifted Housing Demand

While discussing home prices, let’s address another game-changer: remote work. You might think you know how it’s affected the housing market, but recent trends are painting a different picture. What’s really happening with work-from-home and housing preferences?

Evolution of Remote Work in the U.S. Workforce (2003–2024)

The initial surge in remote work during the pandemic led many to believe that housing demand would permanently shift towards more rural or vacation-style properties

Remember when everyone thought we’d all be working from beach houses? The initial surge in remote work during the pandemic led many to believe that housing demand would permanently shift towards more rural or vacation-style properties. It seemed like a logical assumption – if you can work from anywhere, why not live somewhere picturesque?

But here’s where things get interesting. Many companies have since required employees to return to the office, and this shift is beginning to influence housing preferences back toward urban areas.

Perhaps the most ironic example of this was when Zoom required employees within 50 miles of an office to return to in-person work at least two days per week starting in August 2023. This decision was newsworthy because Zoom had become a symbol of the remote work revolution during the pandemic, making it surprising when the company shifted toward a hybrid work model.

The data shows that remote work initially increased demand for homes in less populated areas, but this trend has stabilized. In major cities where remote work was once prevalent, there’s been a noticeable decrease in demand for homes as companies push for a return to in-person work. It’s not a complete reversal, though. The remote work trend is evolving, with many employees adopting hybrid work models. This has created a more nuanced impact on housing demand than initially predicted.

As a result, the long-term effects of remote work on housing demand are still unfolding. Regions that experienced a surge in demand due to remote work are seeing a leveling off, with housing preferences shifting back towards urban centers. But it’s not a simple “back to normal” scenario.

The reality is that the impact of remote work on housing demand is more complex than many initially thought. It’s not a permanent shift away from cities or a complete return to pre-pandemic patterns. Instead, we’re seeing a new equilibrium influenced by evolving work policies and individual preferences. 

Myth 5: The reason that there is an inventory shortage is that Wall Street is buying up all the houses

Now, let’s tackle another hot topic in real estate: Wall Street’s role in the housing shortage. Think you know who owns most of the homes in America? The truth might surprise you. What if I told you that the “big bad” Wall Street investors aren’t the housing market villains they’re made out to be?

US Homeownership – Not What You’ve Been Told

This graph depicts the current breakdown of the homes in the US

You’ve probably heard the narrative: Wall Street is buying up all the homes, leaving regular folks out in the cold. Headlines screamed, “How do we compete with corporations?” It’s a compelling story, but here’s the kicker – the numbers do not back it up. Large investment banks own less than one-half of 1% of all homes in the US. That’s right, less than 1 in 200 homes. Note in the graph that you cannot even see the tiny plot of the institutionally owned homes.

But wait, there’s more. Many of these larger holders are selling off homes for profit. They’re not all hoarding properties; many are treating them like any other investment. Buy low, sell high. It’s Business 101, not a sinister plot to dominate the housing market. Were it not for the supply shortage, Wall Street would have continued ignoring the single-family homes market like it has for the previous 130 years. If we build more homes, the supply and demand balance will slow the appreciation rate, making it less exciting for corporate investors. We can use capitalism to thwart this threat by increasing the housing stock.

So if Wall Street isn’t the boogeyman, what’s really causing the inventory shortage? The answer lies in a long-term trend that’s been building for years. We’re facing a severe supply crisis due to 15 years of under-building. This isn’t a temporary blip – it’s a systemic issue that’s been slowly but surely tightening the housing market.

This supply shortage is the real culprit behind our affordability crisis. With demand outstripping supply, prices have nowhere to go but up. And unlike the Wall Street narrative, this problem won’t be solved by pointing fingers at investors. It requires a fundamental shift in how we approach housing construction and policy.

Myth 6: Millennials and Gen Z Don’t Want To Buy Houses

While we’re talking about market forces, there’s another group that’s often misunderstood: younger homebuyers. Think Millennials and Gen Z are sitting out the housing market? Think again. The data tells a different story, and it might change how you view the future of real estate.

Contrary to popular belief, Millennials and Gen Z are actively participating in the housing market. They’re not just window shopping – they’re making moves and adapting to challenging conditions in creative ways. One expert puts it bluntly: “People want homes. People want to live in a single-family home.” This desire hasn’t changed, but the path to homeownership has.

So what’s really happening? These younger generations are facing unique hurdles. High home prices and significant student debt are limiting their purchasing power. But instead of giving up, they’re getting creative. Many are exploring alternative living arrangements, like leasing out ADUs, to make homeownership possible.

Here’s where it gets interesting. As interest rates remain high, many Millennials and Gen Z are finding it economically more viable to rent rather than buy. This shift is causing a rise in the rental market. But don’t mistake this for a lack of interest in homeownership. It’s a strategic move, a way to bide time and build savings while waiting for the right opportunity.

In reality, younger buyers want to own homes, but they’ve been priced out of the market. The significant decline in construction has hit affordable homes much harder than it has the higher price ranges, so don’t mistake the lack of ability for a lack of desire.

Myth 7: The Housing Market Will Crash

Now, you might be thinking, “With all these challenges, surely the housing market is about to crash?” It’s a common belief, but here’s the thing – the data doesn’t support it. In fact, the truth about our housing market’s future might be hard for some to swallow. Are you ready to challenge everything you thought you knew about the so-called “imminent crash”?

Let’s face it, we’ve all seen the doom and gloom headlines. Heck, last month Peter Schiff released a video exclaiming 80 to 90% price crash is expected! But he’s just pandering for clicks. Experts are actually predicting price stabilization rather than a crash, and this next graph shows why we aren’t heading for a 2008-style meltdown!

No 2008-Style Meltdown

Current market conditions are significantly different from those leading up to the 2008 crash.

Graph compares today's inventory with the housing bubble

Back then, over four million homes flooded the market, left waiting for buyers who had the mortgage rug yanked out from under them by a well-meaning but mismanaged government. Today, just over one million homes are on the market. Can you see why there is no pricing crash? Supply has fallen harder than demand! It’s simple supply and demand – when there aren’t enough homes to go around, prices tend to stay high.

But let’s be real – the market isn’t uniform across the country. Some areas have seen price drops. Take Austin, for example, where prices took a significant dip. But here’s the key – these instances are anomalies. They don’t reflect the broader national trend.

As one expert put it, “The housing market has remained resilient and prices have held steady despite monthly payments reaching levels that economists considered unaffordable.” This resilience is a key factor in why we’re not seeing a crash. 

Navigate the Real Housing Crisis

Alright, we’ve busted some major myths about the housing market. But here’s the real kicker – There is an ongoing housing crisis.

It’s not about a market crash or Wall Street buying up homes. The real issue? Affordability. Years of underbuilding have left us millions of homes short, driving prices up and pushing homeownership out of reach for many.

If we don’t see a significant increase in affordable housing soon, we’re headed for trouble. Wall Street might step in, turning us into a nation of renters. That’s not just bad for individual buyers – it’s a fundamental shift in how our society functions. Think about how much of our economy has been carried by home equity over the past 80 years.

So what can you do? Stay informed. Use the data we’ve discussed to make smart real estate decisions. Don’t let fear or misconceptions guide your choices. Here’s a pragmatic approach:

When you come across someone predicting doom for the housing market, start by asking, “How will this affect the balance between supply and demand?” That’s the key to predicting price shifts in real estate, just like any other commodity.

Remember, understanding the real issues in the housing market isn’t just about making good investments – it’s about shaping the future of our communities.

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