The US housing market, including Tucson, has been historically hot in recent years, but that may be coming to an end. Homebuyers, sellers, owners, and investors are sitting on the edges of their seats, just waiting for news that the housing market will slip and the current period of growth will be hit with a swift bubble burst.

Interest rates are quickly climbing, which in turn is limiting many prospective buyers' purchasing power. As a result, many who could previously stretch their budget now have to draw back to lower price points to accommodate higher financing costs.

While it's easy to see how the market will begin to cool off, the question must be asked, is a housing recession likely?

Major drops in the housing market are rare – in fact, while many are still scarred from the housing crisis of 2008, that event was a historical anomaly. Moreover, there have only been a few housing crashes in the past century, namely the Great Depression, the 1980s crash, and the most recent recession.

To answer if we are headed for another bubble burst, let’s consider the housing market fundamentals that lead to a housing market crash.

1. Demographics and buyer demand.

Buyer demand in relation to supply is the largest contributor to housing prices. In the early 200s, there was a building boom as financing was accessible and buyer demand was strong. But after the market crash, that quickly did a 180. During the crash of 2008, supply briefly outpaced demand because buyers were unable to get financing or sat on the sidelines in fear.

Today, the largest living generation, Millennials, are now at prime buying age, but there aren't enough homes to satisfy demand. The building industry dropped off post-2008, and as a result, the US is between 4-6 million homes short of meeting demand, contributing to the current housing crisis. Demand will continue to outpace supply for some time.

2. Inflation and interest rates.

Interest rates can have a massive impact on a weak market, but a strong market with high demand will survive higher interest rates. Surprising to many, inflation drives housing prices upwards. Given the current market conditions, it’s unlikely that interest rates will kill demand.

Additionally, unlike in 2008, most homeowners are subject to volatile variable interest rates but have secured fixed rates with dependable monthly payments.

3. Home equity

The biggest contributor to the crash of 2008 was the lack of equity homeowners have in their properties. In the early 2000s, buyers could purchase with little to no money invested as a deposit, creating masses of sub-prime loans. Therefore, it was easier to walk away from rapidly increasing monthly payments when they had 'no skin in the game' and negative equity. Today, homeowners have a record high equity level; the average homeowner has $185,000 of equity in their homes.

While there is uncertainty in the path forward, the current lack of supply, high buyer demand, substantial homeowner equity, and financial conditions, a historic bubble burst probability is slim to none. But that doesn't mean prices will keep skyrocketing. There is already evidence that markets are starting to cool off with price growth easing. So buyers shouldn't be deterred but act with caution.