Many of my clients and friends have been asking me, is the real estate market going to crash? My short answer to them is no, and here’s some great information to back it up. 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.
If you’re concerned we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.
Tom is that rare salesperson who is genuinely concerned for his clients’ best interest before his own. Most of Tom’s clients end up becoming his friends for life. I can always count on Tom to have the highest level of integrity in his work. In addition to being a trustworthy and ethical agent, Tom is one of the hardest workers I know. He would not hesitate to give someone the shirt off his own back and volunteer to “take one for the team.” I’m thankful to have him on our team at F+P.
- written by Mark Fitzpatrick owner of Ruhm and Idaho Wild (previous broker of Fitzpatrick and Prince Real Estate Group)
The words you use, and even the ones you don’t, significantly impact how people perceive you. Turns out, you may be communicating poorly without knowing it.
Here are four offenders and how to avoid them:
Don’t reveal that you are too busy, even if you are. Work can get crazy. But complaining to customers about how busy you are can be mistaken for a cue that you don’t have time for them or their referrals! In fact, they may help by leaving you alone.
When clients ask how you’re doing, have a positive script that won’t turn them away, such as: “Business is very good! We have a lot of exciting projects underway, and we’re always looking for new, high caliber clients like you/the ones you’ve been referring.”
Listen first, sell second. You may have the perfect product and all the right answers, but remember your customers want to be heard before they want to be sold.
People get deep satisfaction from unloading their issues, especially to someone whom they expect will listen. Not only that, but letting your customers “get it all out” can often reveal further business opportunities.
Remember, they can hear you slouch. Everyone knows body language is critical in presentations and meetings. What about over the telephone? When you slouch or frown on the phone, you telegraph that energy and people can “hear” it.
That’s why you should always answer the phone with a smile—you will exude warmth and confidence in your voice, which customers can detect immediately. Sitting up straight helps, too. When you sit up straight and smile you change your demeanor—studies show it can even change your mood!
Focus on the conversation. When people take time to call you and you accept the call, then by all means give them the attention they deserve! Just like slouching or smiling, people can also hear when you are distracted; avoid web browsing, checking your phone, or writing an email during phone conversations. Being fully engaged shows that you respect their time and business.