About a year ago, we were entering a scary time. COVID-19 had just emerged in the US and the real estate industry was bracing for the worst. Gloom & doom was everywhere: would buyers still want to buy? What would happen with all the forbearances? Will this be 2008 all over again?
We did tell you that healthy loan profiles and low inventory would make any sort of crash very unlikely. And sure enough, here we are a year later and if anything, the residential housing market is TOO hot.
Inventory is down 45% year over year and asking prices (“CHPI” is a proprietary measure of asking prices of the average American home) are up 15%.
Repeat after me: THERE WILL BE NO ’08-STYLE HOUSING CRASH.
The current industry outlook is off-the-charts high. To have a price downturn of any kind (even a mild one) would take a huge infusion of inventory.
Let’s look locally.
This is what we call an “overheated” housing market. Recipe for massive bidding wars & homes selling way over list price. For every price point under $750k, inventory is 3 months or less. We generally consider 6 months to be “balanced.” Anything below that is a buyer’s market. But below 3 months?! Almost unheard of for an extended period of time.
So, the next time you hear someone talk about a prospective real estate downturn, laugh at them. It’s a very good time to be a home seller, and there is no end in sight.
If you’re in real estate, you’ve probably been asked about 100 times whether this will be like 2008, when we saw huge amounts of inventory & massive price declines.
As we’ve been trying to tell you for quite some time, the current state of real estate looks nothing like the pre-crash environment in 2007. Loan profiles are healthy and, adjusted for inflation, the values are nowhere near as inflated as they were before the Great Recession.
And would you look at that, home purchase mortgage applications are now up 20% year over year.
Any buyers sitting on the sidelines, fearing some sort of residential real estate calamity, might find themselves regretting that move, and soon. Yes, a lot of what we’re seeing is pent-up demand from March/April, but even if things slow as we get into winter ’20/’21, there’s no reason to believe it’s going to make a big dent in prices.
Remember, you can’t have a real estate downtown without a lot of inventory, and that’s where we are right now.
The disruption to our daily lives from Coronavirus is already having an economic impact. Home buyers & sellers are tapping the brakes, to wait out the projected 2-3 month ordeal.
But the news isn’t all bad. Yes, the next couple months will be tough & the economic impact could hit the real estate market. But as it stands now, inventory in our area is so low that an uptick due to buyers staying home might not be such a bad thing.
There are fewer than 6 months inventory (considered a “balanced” market) in every price bracket under $1M. And below $400k, it’s extremely low – under 4 months.
During the Great Recession, we routinely saw over a year of supply in many price brackets, even lower ones. Plus, that crisis was spawned largely due to exploding home prices & a lot of bad loans. This time around, we haven’t seen either of those things.
The takeaway here is similar to what you’ve been hearing a lot lately: don’t panic. Use the next couple months to beef up your website with fresh content. If you don’t want to do it yourself, find a good blogging service.
By summer, with a little luck, things will be much closer to normal and the silver lining is buyers having more homes to choose from.
As more Millennials become home buyers, they are finding that options can be very limited for starter homes, and one of the reasons for this, according to a recent Chicago Tribune story.
A Freddie Mac analysis estimated that Boomers opting to “age in place” rather than downsize are keeping about 1.6 million homes off the market. Another study showed that older homeowners have overtaken middle-aged ones to become the primary source of home improvement spending.
Part of the reason for this is people are living longer, so someone in their late 50s isn’t necessarily ready to move to a retirement community. They instead opt to renovate their existing home to meet their current needs.
While this is great news for the construction industry, it creates challenges for real estate professionals, with most areas in a strong Seller’s market. Low inventory means buyers have to move fast and be prepared to compete for homes & often pay list price (or more).
Here in Mecklenburg County, we’re seeing this very clearly with fewer than 5 months inventory of homes under $400k! In most markets, there’s a “magic number” where inventory jumps upward, and here, that number is well north of $750k. THAT, my friends, is a seller’s market.
The economic crash of 2008 understandably created a lot of jittery people in the real estate industry. And since about 2011, we’ve seen a lot of price appreciation, so some folks are starting to worry that we’re in for another big drop.
But let’s take a step back and look more closely at these numbers. When you adjust them for inflation, they tell a different story.
Now let’s look at it year-over-year:
Feeling better yet? In the run-up prior to the 2008 crash, we saw year-over-year increases over 15%! This time, the highest it got was just over 10% and that was at the beginning of the recovery.
To be clear — the price increases we’ve seen due to low inventory will certainly slow a bit, and maybe even turn the other direction, which is a normal market correction. But we’re not in line for any sort of calamity like we saw a decade ago.
Those of us who were in the real estate biz in the early 00s remember the craziness with mortgages. Subprimes were riding high and money was far, far too easy (which led to the eventual bust).
But check out the loan profiles over this recent boom:
Subprimes have remained at or below 10% of mortgages (where they peaked around 25% pre-crash).
Less money is being borrowed overall
Low credit (under 660) make up less than 2% of loans (down from ~5% pre-crash)
The “TL;DR” from this is that if there is to be a real estate downturn, it will not be due to bad loans or exotic debt structures, as we saw in 2008. If anything, we’ll see a pullback due to a much needed increase in inventory.
2008 (understandably) created some real estate “Chicken Littles” but remember — lightning doesn’t strike twice in the same place. The next “crisis” will most likely not be related to real estate/mortgages.
This little tidbit came out today and we thought it was worthy of a mention. In 2018, over 11% of all home purchases were investors. This is even higher than at the “Great Recession” peak in 2013, when investors were snapping up foreclosures & other distressed properties.
And interestingly, the major uptick was from small-time investors, not the big guys:
As Gen-Xers & millennials start inheriting money in “the great wealth transfer” over the coming years, they might very well look to real estate rather than stocks, where investors sometimes feel they have more control.
In our experience, most agents don’t devote a lot of time trying to attract or cater to investors. But often, investors are a lot easier than owner-occupant clients because they tend to buy quickly and for cash. They are numbers-oriented buyers, so take some time and provide market stats on your blog/website! If you need help, just drop us a line!
Our annual Charlotte market report is hot off the presses and the main story is that in 2018, the average single-family home in the city of Charlotte went for over $330k! That is up 8% from 2017 and a whopping 15% from 2016.
However, we are seeing less activity, as we’ve reported in the past. Buyers are more scarce, and while inventory is still very low, there’s reason to believe 2019 will start moving in the direction of a buyer’s market, especially with the Fed expected to continue to raise interest rates.
But in terms of prices, that isn’t a reason to worry, at least at this point. Check out North Mecklenburg, for example:
North Meck (including Huntersville) is up over 10% in 2018 after seeing only a slight increase in 2017. But like most areas, activity is down.
So, what are you waiting for? We have data for all MLS areas along with subdivisions/condos. Feel free to use any/all of this for your blogs & social media. You won’t find it anywhere else!
Have you noticed fewer serious buyers roaming the streets? So have we, in the data.
As you can see, the customary drop in sales we see from August-October is noticeably larger this year and the number of homes on the market is higher than it’s been since 2015.
This isn’t panic time — inventory is still low. That said, the days of “put a $500k house on the market & watch it sell in 2 days” are probably coming to an end. The public is often behind on the trends and your Sellers might not realize what’s going on (apart from their homes sitting longer than they expected).
So we’d suggest you compile data (like you see here) on what’s going on. The lack of buyers now means the data you see in the coming months will show an even more stark contract from previous years.
This page updates daily — bookmark it and feel free to download the charts anytime: Market Trend charts.