Blog > Market Crash 2022
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Hey everyone,
Steven with Red Rock Real Estate!
Did you feel the market shift?
It happened so fast and quick some of my clients got
Market Whiplash.
We felt a huge pause while everyone is assessing what is actually happening.
And I keep hearing clients and friends say
they are going to wait
till the market crashes to Buy or Sale.
The market is NOT going to crash!
So let me share why this cycle is nothing like 2008.
1st,
Real Estate is controlled by supply and demand. Nothing else,
not even rates.
in the 1980s Home prices softened at the highest rate of 18%,
but they did not crash.
How was 2008 different from today's market!?
First of all, 2008 was the year of Stated Income loans.
Per Google
"A stated income loan is a mortgage where the lender does not verify the borrower's income by looking at their pay stubs,
income tax returns.
Instead, borrowers are simply asked to state their income, and taken at their word."
Many buyers got into debt over their heads and with huge loans,
they were not actually qualified for.
Loans with balloon payments that made it easy to get into, hard to pay, and even easier to walk away from.
The market became flooded with foreclosures.
That created High supply, and low demand!
Remember Supply and demand control the market.
The current supply of homes today is 1/4th of what it was
in 2007.
3.7 Million homes on the market in 2007
vs today of just around 800k.
Building starts in 2007 were at
2.1 million.
Today about half at 1.4 million.
What caused the lack of inventory!?
Well, New housing starts got jacked by supply chain issues, that caused materials to go way up and delay construction schedules.
Remember when covid hit?
Flatten the curve!?
Business's shut down, manufacturing stopped
which caused supply chain issues.
Low supply!! High demand.
Skyrocket prices.
Lumber prices when from an average of $600 per board ft
to $1,700 per board ft.
And even with outrageous home prices,
Buyers were willing to pay crazy amounts
because they were tired of the bidding wars
and needed a place to land.
That kept supply low.
Again, supply has to exceed demand for prices to come down.
Part of it was also perception.
Like the toilet paper crisis.
There was plenty to go around, but once consumers cried wolf
there was a run on it, of course,
the shelves were emptied.
Right now there is way too much demand for homes.
The current market shift is a hiccup in reaction to the Fed's raising rates.
Even if it was at 8%, that would be the historical middle-of-the-road rate.
Remember it's about perception.
During the run on homes in 2004-2006, the rate
was in the sixes.
But now that we have seen rates go in the low 2's,
it's a shock to the system.
In fact, many new home buyers have never seen anything over 4 until now.
Perspective is also like watching gas prices
go over $5.00 per gallon
but slightly relieved when they come back in the
$4 dollar range.
Even though we were paying half of that a couple of years ago.
So to recap! about Supply and Demand
On the supply side!!!
1. There is a shortage of existing homes on the market and new home starts are down.
2. There are very little to no, foreclosures.
On the demand side:
1. There are 5 million more buyers (Millenials) in their
30's need a home.
2. There are 12 million more householders as our population grows.
3. Investors are buying 1 in 4 available homes.
That is keeping supplies low.
This looks nothing like 2008.
The gap between supply and demand is way too big for there to be a crash.
Homeowners today are more equity rich than ever.
They have way more to work with vs
being underwater on a loan like in 2008.
And even with Rates that shot up to 6%
and are now in the 5's,
there are options to pay for a rate buy down
or negotiate the Sellers to pay for a rate buy-down.
Now you're looking in the mid to high 4's %
It's still a great time to buy!
Because there are no bidding wars and pressure to
remove appraisal and
inspection contingencies.
And, according to all the experts, homes are expected to
appreciate in 2022 by around 8%
and in 2023 between 3-4% Which at that rate is a normal,
healthy market.
It's still a good time to Sell.
Just be prepared to be on the market for a normal 30-60 days at least.
If you found this video helpful, give me a thumbs up.
And see you on the next one.