It seems like every issue nowadays has two opposing camps, and it’s no different with Real Estate.
You have a group that says we are headed for a crash and another group saying just a slight slowdown.
Well, who’s right?
Let’s look at some numbers & trends, however, this time you must look at more than just your neighborhood.
A company called Altos Research has been tracking the U.S. housing market since the mid-1960s. Here are some of their findings.
Many of you remember the 2007-2010 recession. The inventory of homes for sale got to about 1.93 million homes. Which made it a very clear “Buyers” market.
We started to see a slight change to a more neutral market from 2010-to 2012 and by the end of 2012, the market was more of a neutral market. At that time, we had 1.5 million homes actively for sale in the U.S.
From 2012 all the way to 2020 we had a constant year-over-year appreciation growth of 5-8% annually. By 2019 we started to feel that it was unsustainable growth, and we might start to slow down.
From 2012 – to 2019 inventory steadily declined to 925 thousand.
2019 to present we had two back-to-back 20% annual gains and it’s no surprise that the inventory levels got down to 293 thousand homes nationwide, talk about demand!
1.93 million supply of homes for sale = Buyers’ market
1.5 million supply of homes for sale. = Neutral market
924 thousand supply of home for sale. = Sellers’ market
293 thousand supply of homes for sale. = Crazy #$%@ market
Remember how people behaved when the stores were running out of toilet paper? The craziness in the housing market has been double that.
Until the focus turns to increase the supply of homes for sale “it’s a problem”! The current inventory must increase 300% to get to a hot seller’s market. It must increase over 500% to get to a neutral market.
A few ways to increase the supply is to make building not so restrictive with entry-level homes. How about incentivizing seniors with some tax savings, on their gains, to bring those bigger homes to market. There are several options to increase the immediate supply side of the market.
However, the powers to be not even discussing it.
Can it get tougher? Yes, current government policy is doing the opposite to solve the problem. They are giving tax incentives for 1st-time buyers, offering 40-year loan terms, giving tax incentives to pull your down payment from your 401k early, etc. All these solutions are creating more buyers which are adding to the demand and putting more pressure (upward) on home prices.
So back to the original question- Housing bubble or continued growth?
A crash is too far out (at best) with the current happenings in the marketplace. But some people are going to get caught up in the frenzy and make poor decisions.
Continued appreciation rate? The 20-21% a year is unstainable and not healthy and will adjust. But even 1-3% a year (with current values) is exceptional.
It is clear that at least for the next 6 -12 months we will continue this crazy train ride.
My final thought is, as with any “extreme” market your strategy matters more than ever, and plan accordingly.
Until we meet, take care.
I would love to hear your thoughts down below.
