March 18, 2020 – Hi everybody, I’m Noelle Cummings with Windermere Bay Area Properties in Walnut Creek, California. I hope you’re having an amazing day! I really appreciate you checking out this video.
Well, with all the volatility in the stock market and the uncertainty about Covid-19 over the past few weeks, a lot of people have expressed concern that we may be headed towards another housing crash. Hopefully, I can ease your mind a little by giving you a few reasons why today’s market is nothing like the market was back in 2006 to 2008.
Reason number 1: Mortgage standards are nothing like they were back then. During the housing bubble – many of you will remember – it was difficult NOT to get a mortgage. But today it’s actually pretty tough to qualify. There’s a great deal more documentation required, and lenders are much more stringent about verifying a borrower’s financial stability. So, the mortgage industry is more durable, and our housing market is much more secure.
Number 2. Prices aren’t spiraling out of control. Though current appreciation is higher than historic norms, it’s nowhere near accelerating out of control like it did in the early 2000’s. According to our local multiple listing service, as the first quarter of 2020 comes to a close, the median sales price for a single-family home in Contra Costa County was just over 763 thousand dollars. That may sound crazy to some, but we’re used to it here in the Bay, aren’t we!
Anyway…Next, we haven’t had a surplus of homes on the market, we’ve actually had a shortage. On the other hand in 2007, there were too many homes for sale, causing prices to tumble. It’s said that the supply of inventory needed to sustain a normal real estate market is approximately six months’ worth. In Contra Costa, as of January, unsold inventory of single-family detached homes was 2.3 months’ worth, with average days on market at about 34. Honestly, we still have to see how Shelter-In-Place situations in the Bay Area will affect inventory over the coming months.
Another factor in the last housing crisis was that houses were just too expensive to buy. I know that sounds nuts, with median home prices approaching a million dollars, but bear with me. The housing affordability formula has three components: price of the home, the wages earned by the purchaser, and the mortgage rate available at that time. Ten to fifteen years ago, prices were skyrocketing, wages were low, AND mortgage rates were over 6%. Today, even though prices are still quite high; wages have increased, and mortgage rates are at an all-time historical low, at around 3.5%. Translated, that means that the average family now pays a smaller percentage of their monthly income towards their mortgage payment, as compared to back then.
Finally, many homeowners today are equity rich. Leading up to the bubble burst, homes were basically being used as ATM machines. A lot of people withdrew their equity as soon as it built up; and when home values began to fall, owners found themselves in a negative equity situation – owing more on their mortgage than the home’s value, otherwise known as being upside down. Many chose – or were forced – to walk away from their properties, creating a surplus of foreclosures and short sales, and thus further dragging down the value of homes. But, prices have risen nicely over the last few years and homeowners have cashed out over $500 billion dollars LESS than before; all of which has led to over half of the homes in the country having greater than 50% equity!
So really, as you can see, our nation’s housing market is much stronger than the last time we entered difficult financial times. Despite Covid-19’s impact on the world’s economies clearly growing, the key factor for real estate in the U.S. is going to be the duration of the crisis. Unfortunately, as of now we’re seeing the Bay Area market coming to a near halt due to Shelter-In-Place orders. This is most likely going to slow home price growth and may even cause a decline in some areas, but we are unlikely to experience a full-on crash in the housing market.
As the situation continues to evolve and change, here’s something worth remembering: A virus can’t cause home prices to drop, or the real estate market to crash! At least not directly. Those things occur due to changes in supply and demand and consumer confidence. Basically, this all depends on how people REACT to the situation. So, please keep calm, ration your toilet paper, stay inside if directed, and wash your hands!
I hope this has been informative and also helped to alleviate some of the concerns you may have been having about the housing market. If you liked this video, please like, share, and subscribe to my YouTube channel, for future updates and real estate tips. I would also love to hear from you about what other real estate related topics you’d like to see videos on. Thanks so much for watching, and let’s keep in mind during this time that everyone is fighting their own battle, whether public or private. Let’s try to be kind to each other always. Wishing you and yours health and safety; until next time!