By: Neil Goradia
Reading recent headlines, you’d assume that the real estate market was about to collapse and, with Forbes reporting that the industry is already in “free fall,” you’d be right to have your reservations. Before you panic, it’s important to take stock of the factors currently impacting the market and rest assured that its foundation remains intact.
Although it’s undeniable that the real estate market is wrestling with lingering supply chain issues, as well as less-than-ideal interest rates, the industry is far stronger than it was a decade ago. Since 2012, the number of new home constructions has risen roughly 67% and homes home are still selling quickly, averaging 17 days on the market according to NAR’s most recent existing home sales report.
Current Housing Market Status
Across the country, current data does show the real estate market is taking a breath. It would seem that buyers are trying to grasp the current economic conditions.
Headlines in the Denver area assert that housing prices are being slashed in record numbers, but that’s only part of the story. Jennifer, an agent and home buyer in Denver, Colo., said, “The truth is the Denver housing market is still in a healthy position and in fact still favors owners that need to sell their house. We are shifting from a sellers’ market to a slightly more neutral position; however, when quality homes are listed for the right price, they are still selling in a reasonable timeframe.”
In short, the real estate market is not in free fall. Despite ongoing difficulties caused by the COVID-19 pandemic, it remains stronger than it was since before the Great Recession of 2008.
2022 Will Not Be a Repeat of 2008
To better understand the current real estate market, it helps to compare today to the most recent housing crisis: the 2008 recession. At that time, the market was in free fall due to a number of factors, including:
- A lack of jobs and income
- The over-valuation of homes
- The subprime mortgage crisis
- The burst of the housing bubble
As cracks began to develop within the subprime mortgage industry, it became clear that the housing market of 2008 was built on a house of cards. The result, as we all know was record foreclosures, a mess that was left by irresponsible financial and lending practices.
Today, however, is a vastly different situation. Mortgage and lending practices were overhauled as a result of the Great Recession, most homeowners today are well equipped to afford their mortgages. Disruptions within the real estate market today are largely a result of ripples within the general economy left over from the COVID-19 pandemic.
Going back to 2020, the world came to a grinding halt as an overwhelming majority of employees were furloughed or told to stay home. This created major bottlenecks within the shipping industry, leading to widespread supply issues and driving up the price of both consumer goods and raw materials. Rising prices led to rampant inflation, forcing the Fed to increase interest rates, making it harder to secure financing.
Today’s scenario is less about an overinflated economy on the verge of rupture and more about the lingering after-effects of a generally slower economy.
Despite a Slower Economy, the Market is Still Strong
In 2012, new construction rose by 28% and within the year, 954,000 new homes were built. Likewise, homes started selling faster—within five months rather than . Many market analysts viewed this as the end of the housing crisis and a return to new development. Yet, comparing 2012 to today, we can see that the modern market is far stronger.
Even with bearish headlines prophesizing potential doom, more than 1.4 million new homes have been completed monthly within the last year. Additionally, homes are selling faster than ever before, sometimes within just a few weeks. And, while these statistics may have slowed down since the start of the year, they by no means indicate a collapse of the market.
How to Advise Clients Hoping to Buy or Sell a Home
There’s no denying that the real estate market is in flux. Potential buyers are contending with higher-than-expected housing prices and interest rates, and sellers are struggling to find new properties to move into before closing on their current residences. This has left many wondering whether they should just wait or risk a loss by engaging with a volatile market.
We recommend advising clients in the following ways:
- Long-term vacancies are often more expensive. If a client has no option but to move, they may consider keeping their current home vacant until they can sell it at a better rate. Unfortunately, this isn’t always possible or practical. In many cases, it’s more expensive to keep a home vacant than to sell it for less money than originally desired.
- Don’t wait for the perfect deal. In a sellers’ market, it’s often hard to find the perfect deal. We recommend that clients consider negotiating and, if they absolutely must, be willing to accept a slightly higher asking price.
- Have a backup plan. Many areas are still seeing high demand, leaving some hopeful buyers stuck in bidding wars. Rather than wait for an over-valued home, it’s better to have a backup plan in place.
- Work with a real estate agent. Trying to navigate the real estate market on your own is a recipe for disaster. We recommend that all of our clients work with a real estate agent who can help them find the best deal possible.
The Bottom Line
The real estate may be experiencing some disruptions, but its foundation remains strong. We recommend advising your clients based on their specific situations and assuring them that the market isn’t as bad as the headlines indicate.