Let’s talk about real estate in the US. Specifically, about the inventory crunch, and all the speculations about the housing bubble or the housing crash.
I want to remind you that the real estate market boom we’ve seen over the last two years is something that has never happened before, historically speaking.
In the past two years, US home price growth is recorded at 34.4%, including the 19.8% growth in the last 12 months.
Now we’re starting to see everything circle back to normal in some areas, while in others we are still seeing a spike.
I want to share with you this article from Fortune magazine, quoting Zillow economists who say that we are not in a housing bubble.
Fortune magazine reports, “That's something economists at Zillow have been researching. On Monday, Zillow published a paper declaring that we are not inching toward a housing bubble or crash. They also argue that housing bubble fears are actually making matters worse and could drive home prices even higher.”
They go on with the why, and I thought that was brilliant on their part. I don’t agree with everything Zillow says, sometimes, they get things wrong, but in this case, they are using some data and some logical information.
The article says, “Zillow researchers think if homebuilders reduce production out of housing crash fears, it could keep inventory levels suppressed.”
And that makes a lot of sense.
Although now, if you Google news about the housing market, the media no longer says there is a crash, but more of a soft landing. It is slowly transitioning into more of a normal market for the real estate side (though I can’t speak for the stock market because I am a real estate agent).
But, if we continue hearing the media say there is a housing crash, and those fears get to the builders, making them step back on making more homes, Zillow says it’s going to be a problem. Right now, the inventory crunch is starting to ease out in some areas, but it will take a lot longer if the fear [of a housing crash] gets to the builders.
In March, the Federal Reserve Bank of Dallas released a research paper, and this is an excerpt from Fortune’s article about what the researchers say:
“The gap between the actual price-to-rent ratio and its fundamental-based level in the U.S. has grown rapidly during the pandemic—comparable to the run-up of the last housing boom—and started showing signs of exuberance,” write the Dallas Fed researchers. However, they go on to say if a housing correction does come, it shouldn't resemble the 2008-type crash and the foreclosure crisis that followed. Unlike the 2000s housing bubble, homebuyers these days are in better financial shape and should be better prepared to weather an economic storm.”
People are scared because the prices are going up and the rents have gone up dramatically, which was similar to the housing bubble that happened in 2008.
This time is a little different because homebuyers are more in control of their finances. They have a lot of equity in their homes, and foreclosures are very low.
That’s the cool thing about the market we’re in right now.
“Researchers at Moody’s Analytics labeled 96% of regional housing markets as ‘overvalued,’ while Florida Atlantic University finds 100% of housing markets are ‘overpriced.’ Meanwhile, CoreLogic’s data (see chart above) labels 64% of regional housing as ‘overvalued,” says the article.
Both Moody’s and CoreLogic say, yes, the homes in most regions are overvalued, but it doesn’t mean there’s going to be a housing crash. It’s just that, based on the data, these places have seen so much influx of homebuyers that everybody’s been overpaying.
And that’s what’s been happening. You notice that in Boise, and other parts of Idaho, Florida, and Phoenix - where you have an influx of people - all of a sudden the inflation went up dramatically higher than anywhere else.
Fortune reports, “Zandi predicts that extremely ‘overpriced’ housing markets, like Phoenix and Charlotte, could see 5% to 10% price declines.”
I’ve been doing research on this myself, and I have to say, I am more in line with what Zillow says.
According to the article, “Zillow disagrees with Zandi. The home listing site is forecasting that U.S. home prices are poised to rise 14.9% between March 2022 and March 2023. The reason? They believe homebuyer demand, underpinned by a demographic wave of millennials entering the market, will continue to outmatch supply. Even if their forecast proves wrong, they’re highly skeptical that home prices could fall by much.”
To help you visualize how low the housing inventory is right now, check out the graph by Fred. It shows how inventory dropped since the pandemic started, and while it has started coming alive in 2021, it is still not enough to satisfy the huge demand of the market.
This is what people talk about when they tell you that there just aren’t enough homes for the people who are looking to buy.
Zillow is right. If builders start freaking out and stop building more homes in fear of a housing crash, the normal market we are trying to achieve will be going further out.
You also have to remember that real estate is regional. There are some areas that may see a little bit of a dip. But for the most part, we are looking pretty solid.
So, when you hear anybody tell you that there is a market crash in real estate, give them some data.
This is the challenge.
I still get a lot of people commenting on my YouTube channel. There are a lot of people speaking like this:
This is just the beginning.
✔️Mortgage rates have already crossed 5% and will touch 6-7% by summer.
✔️Buyers who are pre-qualified at 3% are no longer qualified during closing now with 5% Mortgage rates leading to CANCELLED CONTRACTS in spring/summer.
✔️Foreclosure that stopped for the last 2 years will start hitting the market.
✔️New construction supply will start hitting the market at the same time.
✔️The Wall Street buyers will start dumping their real estate purchases once they realize there is no more appreciation left.
✔️It takes just one house on the street to sell at 10-20% below asking to start the trend and pull values for the remaining "comps".
A crash is inevitable.
All this false information, and I want you to stop that. I want you to take a look at the data. Stop falling for people just blurting out stuff because that is what they feel and that’s the position they take from the news. They don’t take the time to dive into the data.
