Could the COVID pandemic cause a housing crash?
With all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), some are concerned we may be headed for another housing crash like the one we experienced from 2006-2008. The feeling is understandable. Ali Wolf, Director of Economic Research at the real estate consulting firm Meyers Research, addressed this point in a recent interview:
“With people having PTSD from the last time, they’re still afraid of buying at the wrong time.”
There are many reasons, however, indicating this real estate market is nothing like 2008. Here are five visuals to show the dramatic differences.
1. Mortgage standards are nothing like they were back then.
During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time.” The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble.
2. Prices are not soaring out of control.
Below is a graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite strong recently, it is nowhere near the rise in prices that preceded the crash.
There’s a stark difference between these two periods of time. Normal appreciation is 3.6%, so while current appreciation is higher than the historic norm, it’s certainly not accelerating beyond control as it did in the early 2000s.
3. We don’t have a surplus of homes on the market. We have a shortage.
The months’ supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.
4. Houses became too expensive to buy.
The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here’s a graph showing that difference:
5. People are equity rich, not tapped out.
In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion dollars less than before:
During the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was greater than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can’t happen today.
2019 Mid-Summer Market Update
It's August already... slow down summer! Let's take a quick look at how the market performing, shall we? For this analysis we will be focusing on closed sales. Closings typically take 30-45 days, so July's closings reflect June's market activity, but nonetheless this will give you a market snapshot with the most up-to-date info we have available. Take a gander below, and if you're curious about your home's value, contact us for a free, no-pressure market study.
Closed Sales
June 2019: 8,055 total salesJuly 2019: 7,914June to July (i.e. May's accepted offers vs June), saw total closed sales across the state drop about 1.7%. This is a fairly negligible change considering the market was transitioning from the typical spring sales rush into the summer, which tends to slow just a tad. In our opinion, a small decline like this is nothing to be concerned with, if anything we would've expected a bit more of a drop. The market is still chugging in terms of properties changing hands.
Average Days on Market
June 2019: 47July 2019: 46A very, very small drop in Days on Market. Homes are still selling at a consistently, quick pace.
Median Sale Price
June 2019: $440,000July 2019: $433,000The most important part... home values. July saw a small decrease of 1.6% in the Median Sale Price for homes and condos. Again, a minor blip. I'd expect that next month we could see a similar decrease as the summer progresses and some homes sit on the market for various reasons. Ultimately, most markets, especially ours south of Boston, are still very strong and home values are holding steady.
2019 Spring Market Update
A rainy April has come and gone, and now we’re half way through May. Let’s take a quick look at the spring real estate market for the state of Massachusetts...
Pricing
Single-family: Median prices for single family homes have risen 2% since last year to $395,000.Condominiums: Median prices for condos have decreased by less than 1% to $375,000.
Sales
Single-family: Pending single-family sales are up 14% from last year to over 6,400 homes in the month of April.Condominiums: Pending condo sales have risen 11% to 2,500 for the month of April.
What does this all mean?
The Spring market is strong once again, but it's a bit more reasonable. Homes are selling relatively quick, with an average of just over 30 days to offer. Multiple offers are common, but 25% of realtors are reporting that their listings did not have multiple offers. Overall pricing is steady. This signals that the market is strong, but not irrational as it has been in the past, which is great for buyers and still good for sellers.In summary, it's a typical busy Spring market! Curious to chat about what this means for you and your home's value? We're always here to help!
Should you use a buyers agent?
This is actually one of the few no-brainers in real estate. The answer is YES, and while that may sound biased coming from us, here are the reasons why:
- It’s FREE to you. Seriously. A buyer's agent is paid out of the seller’s agent’s commission. Some people think that by not using an agent, they can save the money that the buyers agent would have been owed. That’s not the case, 99% of the time the seller’s agent will just keep the full commission for themselves. (Note to sellers: We don’t do that!)
- If you enter into a deal with just the seller and their agent, then no one will be looking out for you. The seller’s agent is only concerned with getting the best deal for their client. A buyer’s agent has the fiduciary responsibility to look out for your best interests.
- Real estate transactions can be complicated and cumbersome. Unless you are well-versed in these transactions, navigating the steps of a real estate can be confusing and one small mistake could cost you thousands of dollars.
- A good real estate agent is worth their weight in gold, especially when you don’t have to pay them! An agent will help you avoid costly mistakes and negotiate the best deal possible for you. Moreover, a great agent will have a network of professionals who can help you with whatever the sale may throw your way - and many times they’ll save you money while doing so!
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Thinking about buying a home soon?
Give us a shout and we’d be happy to answer any questions you might have.
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Make your offer stand out!
As you may know, when the real estate market is competitive it means as a buyer you could likely be competing with multiple offers on the same property. When this the case you need to make your offer stand out! Here’s a few ways to do just that.
Offer Price
This is obviously the most important part of the deal. When there are multiple offers it almost always means that you need to match the seller’s asking price or beat it. Going above the asking price is a good way to show that you are serious. How much above the asking price? Well that depends on many factors that you and your agent can sort through, but you need to make sure that you can still finance the home and that you don’t offer too much money (although it is OK to splurge a bit if this is the home of your dreams).
Financing
This is the second most important part of your offer, because without financing there is no deal, unless you happen to be a cash buyer. Assuming your offer price is the same or close to the other offers on the table, the seller will be looking for the buyer with the strongest financing, aka the least chance of their loan falling through. Cash is always king in these scenarios, so if you aren’t a cash buyer then you should try to put as much money down as you can reasonably afford to.
Contingencies
The common contingencies in real estate are the mortgage and home inspection, and sometimes the buyer’s home sale. Ultimately, the most attractive offers have the fewest amount of contingencies. If you need a mortgage then it’s impossible to waive that, which is why cash offers are always preferred. It’s also impossible to waive your home sale contingency if you need the equity from your current home to purchase this new one. So what can you control? The home inspection. Depending on you and the property, it is sometimes OK to forgo a home inspection or make it so that the results of the inspection cannot impact the sale. We only advise this if the home is in great condition, or if you have the ability and know-how to tackle the issues that could be hiding in the home.
Other Factors
What else can you do? Be flexible and kind! Try your best to accommodate the seller’s timing. Also, having an easy-going demeanor around their listing agent can go a long way as they often share those things with the seller. No one likes working with people who aren’t pleasant and reasonable. Finally, a nice touch is to include a short letter that tells them a bit about yourselves and what you love so much about their home. Sometimes some sincerity and nice words will go a long way!