4 Reasons Why a Housing Market Crash Isn’t Coming
If You’re Happy and You Know It…
It’s springtime and the real estate market has been red hot! If you're selling your home or are a homeowner tracking your home's value, you've likely been really happy this year. If you're a homebuyer, you probably haven't been as happy.
This is one of those markets in which homeowners will have the most affordable housing payment based on the low level of interest rates. Recently, the National Association of REALTORS® released a statistic that from March 2020 to March 2021, the average homeowner saw their property value increase by about 17 percent. That is double-digit appreciation! In one year, it's pretty phenomenal to have real estate in your portfolio, and if you don't - let us help you make that happen!
Is It the Best Time to Buy?
With all of these crazy prices driving the market, I get asked all the time: “Is this the best time to be buying? Should I wait until the fall when prices are a little lower? Should I wait until the housing crash?” While some sort of housing market correction is bound to happen at some point, I think now is still the best time to buy a home.
Four Reasons Why a Housing Market Crash Isn’t Coming
1. Inventory is low.
We all know this there are multiple offers on pretty much every listing. We also know that the inventory levels are low. A couple of things are driving this: the past year during the pandemic, people realigned their values on their life, on their family, on their lifestyles — and the home has become of utmost importance. There are a lot more people who went through quarantines and hated the place where they were living more than ever and wanted desperately to get something better.
Plus, we have the pandemic babies starting to be born! Among my own siblings, there are three pandemic babies, so I know that it's common right now and it's happening! Those kinds of things drive home values and the housing market.
2. The new construction boom.
New construction was already crazy before the pandemic. Then, 2020 happened. Builders ran into supply chain issues and many were closed. They could not operate their businesses and builders were down workers, all while there was a huge demand for new construction homes. We are going to be dealing with the new construction prices for some time, even with lumber at this very high level. I've talked to many builders who have said even when lumber prices come down, not much is going to change because of how they have had to operate their businesses during the building crisis. New construction is inflated, and a lot of houses that are going under contract aren’t even starting for six months or a year. The high values will continue until next spring and beyond, and it will take a while for us to get through that absorption.
3. Strict requirements.
Lending requirements are so much stricter now than they were in the late 2000s. At that time, I was in the industry working for a small community bank, where we serviced each loan after closing. Fortunately, we didn't have any non-traditional products, like the “no income, no asset” type qualification loans that were being offered. Now, if you want to do something a little bit outside of the normal, you need a lot more “skin in the game.” Even if you're a first-time homebuyer, you can’t get the seller to cover your closing costs anymore. The minimal down payment options aren’t working as well as they used to, unless you have very good credit.
In another example of lending getting tighter, the treasury just gave guidance to Fannie and Freddie that they are not allowed to originate more than seven percent of their portfolio for second homes and investment properties (and, of course, there's a huge demand for a second homes investment properties right now!). So the thing with situations like this is, the money is tightening and it's harder to get into real estate than it was in the late 2000s. There are “better borrowers” now. This leads to better equity positions for lenders where they won't be in such tough shape if they do have to take a property back.
4. Buy vs. rent comparison.
When I meet with first-time homebuyers, I always run a buy vs. rent comparison. In many markets within the Twin Cities, rents are going up by about five percent each year. Keeping that in mind: on a standard 30-year fixed-rate mortgage, you can get a rate of about half of that. It's kind of a no-brainer, in that instance. For example, if you're renting a house and every year the rent is going to go up by five percent, you can lock into something at half of that percent. It just makes so much sense to buy a house. As rental rates continue to rise, it's going to encourage more people to move from the rental market into homeownership to be able to afford those higher levels of pricing.
These are the four reasons why I do not believe we are facing the bursting of a housing bubble. My opinion is based on 20 years of experience in the mortgage industry. The Amber G Team is helping clients get their offers accepted every day in this crazy market! So if you need a lender and real estate team that will help you truly win in this market, take advantage of having real estate in your portfolio and give us a call at 651-300-9411 or apply here. We're here to help and we want to make it happen for you!
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