2023 is not like 2008

Another housing crash weighs on a lot of people’s minds. Sharply rising mortgage rates, a steep decline in home sales and a record price appreciation slowdown have raised concerns that the housing market could crash. I get the logic, yet experts argue that these market trends are a symptom of a correction after two years of massive growth.

I wouldn’t expect 2023 to be like 2008. For one, something as extreme as 2008 only occurred twice in the past 100 years…. the first was the Great Depression in the 1930s. The second was the Great Recession beginning in 2008. The housing market and overall economy is completely different now versus 2008.

There are two huge differences:

• Risky mortgages created an environment where people could buy more home than they could afford to pay. If people lost their jobs (and they did), it created a vicious feedback loop a cooling market/declining value market + more foreclosures = more declines in home values (and this cycle kept repeating itself).
• In 2008, there was a glut of housing inventory. For once, too many homes were being built. This is the opposite problem we have today with housing inventory levels in Atlanta hovering around 3 months (ideal amount is 6 months to create a balanced market).

There are also too many people who do not own a home that want to buy a home. The housing glut in the 2000s was followed by close to a decade of under-building that contributed to a shortage of millions homes today. This was exacerbated by millennials coming of age near the end of this period of underproduction along with Boomers not downsizing as previous generations did (moving in with extended family, or to retirement communities, or to assisting living/nursing homes). The lack of homes along with the housing needs of the two largest generations in the history of this country (one looking to buy their first homes and the other not selling their homes) should put a floor on home prices.

While 2023 isn’t like 2008, 2024 could be like 2020- 2021. When the national media begins talking about “now being a great time to buy a home,” we’ll see a similar situation as we did during the peak buying years of the pandemic. This is why I keep harping on now being a great time to buy. Purchasing a home now with fewer competitors – even with a slight decline in home values – will be much better than double digit offers, over asking price offers, no contingencies, etc. as we are likely to see the next time it is ” a good time” to buy.

If you are thinking, “maybe 2023 is a good time to buy,” contact me today (see my banner above for contact info). We can get started in just a few minutes and get you pre-approved for the offer on your new home!

Now is a great time to buy a home!

Happy New Year! Yes, 2023 is a great time to purchase a home. I am well aware if you do a search for “is now a good time to buy a home?,” one is likely to find plenty of articles saying now is a bad time to purchase. While there are many good points in these articles (I’ve read a lot of them), they all seem to be missing one important thing…

Competition.

Or perhaps I should say, the lack of competition.

Follow with me for a moment… in 2020-2021, the market was crazy. Sellers were receiving 5, 10, 20+ offers on a home (one agent I know received over 100 on a listing!). The offers were always over (sometimes way over!) asking price. Every offer waived some contingencies, and most waived all of them. This means the buyer had no protection on their earnest money and had to buy the home “as is,” or forfeit their earnest money if they decided not to buy the home.

This isn’t a great way to buy a home. As we moved into mid and late 2022, the market shifted. Yes, there are still multiple offers on homes. Yet it is only a few offers on most homes. Properties are going under contract at/around list price, and buyers are getting contingencies on their contracts (not to mention sellers giving money to closing costs!).

There are many reasons to consider waiting to buy a home (rates are higher, home prices are high, inventory levels are low, a looming recession). Why should someone consider buying right now? To me, it is simply competition…

Many would-be buyers will sit this spring market out because everything they read says “now is a bad time to buy a home.” Let’s say the stories change this time next year. For example, prices have leveled out, mortgage rates have lowered, so 2024 is a great time to buy. Do you know what that means? Competition will be fierce! Buyers in my “spring market 2024” example would include:

• Everyone who decided to push off buying a home in 2023 because it “isn’t a good time to buy a home.”
• Everyone who planned on buying a home in 2024.
• Some who planned to buy in 2025 or 2026 and decided to move up their timeline because “now is a good time to buy a home.”

When the mood shifts to now being a “great time to buy a home,” inventory levels will still be low. The supply-and-demand dynamics dragging inventory levels (too many buyers and too few homes available) isn’t going away anytime soon. The market will resemble to craziness of 2020-mid 2022.

Yes, mortgage rates are higher, but finding the right home is hard. It is way easier to refinance a home you already own versus fighting the crowd to get a home when rates are lower. I’ve bought two homes in my life, and refinanced them both.

Regardless of what is in the news, taking the long term view, now is a great time to buy a home. If you are buying in the state of Georgia, contact me today. I can get you ready to make an offer on a home in just a few minutes!

Housing market closer to historical norms

Recent data shows the housing market is slowing to more of historical norm in terms of the number of sales. The numbers through most of the summer shows a decline month over month and also a decline of roughly 15% from 2021.

“Slowing sales are a symptom of a housing market that’s coming off a two-year pandemic-influenced frenzy and settling into a pace that’s more in line with historical norms,” according to Mark Fleming, chief economist at First American. 

To be clear, the decline is not a crash, but rather an adjustment back to normal. What began this trend? You guessed it, higher mortgage rates.

Buyers are adjusting to the new world of higher mortgage rates. While median household income increased over the past two years, it isn’t enough to offset mortgage rates jumping by over 3% from their historical lows. The result is an over 20% decline in purchasing power (and I am not even considering the impact of inflation in those figures).

Combining higher rates, a loss of purchase power, inflation, and the fears of a looming recession, some would be buyers and current home owners are staying out of the market. Since home sellers are also prospective home buyers, homeowners choosing not to sell is also reducing housing market potential.

One thing to keep in mind is this… homeowners today have record levels of equity. As their equity grows, current home owners are more likely to consider using that equity to purchase another home that better suits their needs regardless of the interest rate. At some point, as it always does, the housing market will pick back up again.

This is the dichotomy potential buyers are weighing… should one buy now when homes are going closer to (or less than) list price, sellers are giving money to closing costs again, and buyers have time for inspections but with a higher rate, or wait until the mortgage rate market improves? More on this next week…

Is the housing market cooling?

For the second month in a row, home sales declined in two ways. First, the number of homes sales dropped from May to June and then from June to July (although a slight drop from June to July). Second, the year over year sales dropped again. This time around an 8% reduction in the number of sales compared to July 2020.

This brings us to the question – is the housing market cooling? Maybe…

It is no secret the number of buyers out there looking has reduced. Do not interpret this as the number of people who want to purchase a home has decreased. That number is still very high. No, the number of people still looking has dropped off. It can be attributed to several things (summer vacation, back to school planning, Delta variant), but to me the biggest reason is people are tired of sky high home values:

• being one of 20 offers on a home
• offering 10% or more above list price and still not winning
• having to forgo all contingencies and safety nets when purchasing a home

A good number of potential buyers have simply punched pause on their home search. Will this trend continue?

On one hand, the demographics tell us that we have a shortage of homes. The National Association of Realtors has indicated that the supply gap is as much as 6 million units. This means the supply and demand issue fueling the the rise in home values will continue.

On the other hand, we know that home prices can’t continue to rise at double digit percentages every year. Thus, expect the market to continue to cool somewhat, but demand should support the market and prices for some time in the future.

One thing still going for buyers is record low interest rates. Rates were supposed to rise this year, but instead rates have stayed near these historic lows recently. These low rates have kept homes affordable despite sharply rising prices.

Still wanting to buy a home this year? Looking now means you may be one of five offers versus one of 20 offers on a home. While still frustrating, it doesn’t seem as daunting as it was in the spring. If you are looking to purchase in the state of Georgia, contact me today! In a few minutes I can have you prequalified, we can easily turn that into a pre-approval, and also start the process of having your loan file pre-underwritten to make the strongest possible offer on a home.