A survey by Pulsenomics asked 100 real estate experts “Is the housing market going to crash? Are we in a housing bubble?”
Let’s take a look at what they said and why they answered the way they did.
At a glance, here is what the results look like.
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Is the housing market currently in a bubble? 60% of those experts said no. I agree with them on that. 32% answered yes, while 8% said they were not sure.
If we dig deeper into this, there are two main reasons why they answered this way: inventory and the current lending practices we have today (which are comparably healthy now compared to the unhealthy practices leading to the crash of 2008).
Today’s housing market looks more like an easing into a more normal market after coming out of the pandemic. Yes, things may be slower, and homes are going to last longer on the market (in some regional areas).
Keeping Current Matters has this data from NAR about the impact of monthly housing inventory on home prices.
Six months of inventory is typically the average for a normal (neutral) market. In a neutral market, home prices will only appreciate during inflation, but otherwise, there is a healthy back-and-forth of negotiation.
If the inventory goes below less than six months, it becomes a sellers’ market and home prices will go up. Once inventory goes up more than seven months, it becomes a buyers’ market and home prices will depreciate in favor of the buyer (because there will be an oversupply and sellers will start competing for sales by lowering their asking price).
Our current market is still a strong sellers’ market. Some say real estate will get to neutral ground as early as next year, but it is still too early to tell, so let’s keep an eye on inventory.
NAR released an article about how existing home sales fell in May and the median sales price went up past $400,000 for the first time.
According to NAR, “The inventory of unsold existing homes rose to 1.16 million by the end of May, or the equivalent of 2.6 months at the current monthly sales pace.”
This data is about a month behind, so if you want more updated data, check out Altos Research. They update their data every week. But, what this data from NAR shows is that we are still in a sellers’ market, and that’s why home prices are still going up.
For those of you asking if we should start worrying about foreclosures, data from the Fed shows us that lending standards are tighter today.
The forbearance program went much more smoothly than we anticipated, so that most of the participants left it, and the participants who were unable to make payments were relatively few (only about 18%).
If you look at the number of loans in billions with credit scores below 620 (from the Fed), Q1 of 2022 is significantly less than the previous years since 2003. It might even get tighter because fewer people are applying for loans due to inflation and the increased rates, and not everyone qualifies for loans.
And if we take a look at inventory (data sourced from NAR), comparing it to the four years of the previous housing crash (2007 to 2010), inventory is also significantly low today (from 2019 to the present).
What our housing market has right now are affordability and supply issues—but there still aren’t enough homes for the people who can afford them.
It is nothing like what the 2008 housing crash looked like when there was an oversupply of homes (8.1 to 10.8 months of inventory). From 2019 to today, inventory has been around 2.5 to 4.6 months. That’s it—it is significantly less.
The inventory is nothing like the last time. Prices are rising because there’s a healthy demand for homeownership and, at the same time, there’s a limited supply of homes for sale. Odeta Kushi, Deputy Chief Economist at First American, explains:
“The fundamentals driving house price growth in the U.S. remain intact. . . . The demand for homes continues to exceed the supply of homes for sale, which is keeping house price growth high.”
(Source: Keeping Current Matters)
Even Jerome Powell, Chairman of the Federal Reserves, tells us in his June press conference that we should expect home prices to still go up.
Realtor.com tells us in which areas homes sell the fastest and slowest.
According to the article, the hot markets are:
While the markets that take the longest to sell are:
I wanted to show you this data because real estate is regional. Some areas sell in two weeks or less, and others stay on the market longer. In markets that take longer to sell, the price points are lower for most, except for Salisbury.
I’m based in Los Angeles-Ventura County, and we are about 30 days or so on the market. It slowed down significantly, but when homes were flying off the shelves here, average days on the market were about 7 to 10 days. Despite the slowdown, homes are still selling in our area.
So, keep an eye on where mortgage rates go and what happens in September and October, when we head into what is normally a down market in real estate (before the pandemic). Do we come out of that? Will we come back up after the down season? We will see when the time comes. But still, it doesn’t look like a housing crash.
