A Real Estate “Reality Check”
Right now, the economy and the real estate market may be making you nervous. If you’re getting ready to buy or sell a house, you may be worried, uncertain, and wondering… Is the housing market going to crash? The short answer… No. Let us tell you why.
It’s All About Perspective (and DATA) Which We Study Daily!
There’s much speculation about the housing market right now. But crazy headlines and talking heads only affect your long-term money goals if you LET them. Don’t fall for the exaggerated tales, listen to an expert who has sold over 450 homes year-to-date! Regardless of what seems big and dramatic at the moment, we NEED to base our financial decisions on DATA. Let’s do a real estate “reality check” based on what we have studied…
First, Let’s Talk About House Prices
● One thing, and one thing ONLY, drives house prices: Supply and Demand.
● Any time there’s more supply of something than there is demand, the price goes down.
● Any time there’s more demand for something — a lot of buyers chasing a small supply of goods — the price goes up.
● In real estate, when demand exceeds supply, house prices go up.
● For housing prices to go down, supply has to exceed demand.
● Since we’ve had a shortage of homes for the last few decades, PLUS the demand is high, higher housing prices are justified.
Let’s Talk About the Housing Shortage
● In 2008, DEMAND fell dramatically BELOW supply.
● But currently, our SUPPLY of houses for sale is about 1/4 of what it was in 2007, and NEW housing supply is 1.38 million — 35% lower than the 2.07 million in 2005.
● Any way you cut it, low used supply and low new supply equals low supply.
Let’s Talk About the Lumber Shortage
● On top of that, new housing got totally disrupted during the pandemic with all the supply chain issues.
● Factories shut down, causing a lumber shortage.
● Lumber tripled, came down, back up, and now has normalized at around $600 per 100 board feet.
● But overall, this has negatively affected building starts, leaving us with a shortage of new houses.
Let’s Talk About Frozen Foreclosures
● The government’s freeze on foreclosures during the pandemic is also driving the shortage.
● Banks stopped executing home foreclosures — essentially letting people live “mortgage-payment-free” the last two years — and now there’s a pileup of homes to be foreclosed on.
● We’re starting to see these foreclosures come back into the market, but it’s still not going to provide enough inventory to make up for the housing shortage, and here’s why . . .
● Millennials have come to prime earning and home-buying age.
● There are now 5 million more Millennials in their mid-30s than compared to 2006 when Gen-Xers were in THEIR mid-30s.
● Plus, in 2007 there were 116 million households in the U.S. compared to 128 million households in 2020.
● That’s 12 million MORE households wanting to own a home today.
● This makes for TOO MANY BUYERS chasing TOO FEW houses.
Let’s Talk About “Investor Buyers”
● In 2007 / 2008, we had almost ZERO institutional investors in the market buying up houses.
● Today we’ve got big investing conglomerates buying single-family homes like crazy.
● They bought 28% of the houses for sale in America in the first quarter of 2022!
● That’s up 19% year over year.
● And they’re buying in more appealing sunbelt cities like Atlanta, Jacksonville, and Charlotte.
Let’s Talk About the “The Great Migration”
● Investors haven’t been the only ones seeking out better cities.
● In the past two years, there’s also been a mass exodus of people across America moving out of undesirable environments.
● We haven’t seen anything like this since the Dust Bowl.
Let’s Talk About Interest Rates
● On top of all this chaos, it’s been a bit of a shock to our system to see interest rates rise.
● It may feel like they’re at an all-time high, but in fact, they’re just starting to normalize.
● To keep perspective, we remember that in 2020 and 2021 interest rates were at an ALL-TIME LOW.
● We reached our all-time HIGH in the 1980s when rates averaged around 17%.
● “Supply and Demand” sets prices, nothing else. Not interest rates, and not fear.
When you add up all this low-supply, high-demand data from all these factors, it’s easy to see how people are feeling boxed out of the market. Especially when you added in the fact that inflation just hit 9.1% in June, the largest 12-month increase in 41 years. Budgets and emotions are maxed.
Yes, there are a LOT of things you CAN’T control. But there’s one important thing you CAN control… YOU! Oddly enough, we can actually say with accuracy that this is a GREAT time to buy a house, AND it is also a great time to SELL a house — if you are ready. If you’re looking to buy or sell your home, you need to hire a professional real estate agent to help you — this is your largest asset. In the economy we’re in, you really need a pro who’s done a lot of transactions in your area.
Life is a long game. Don’t let fear or confusion cause you to do something desperate. Base your decisions on facts, not fear. If you’re in a position to buy or sell, don’t wait on the “Housing Market Crash” because it’s not coming. Reach out to our team of experts today! We have advice, wisdom, and experience to help you meet your real estate goals!