The end of the housing boom
Ten years after the market bottomed out during the Great Financial Crisis, the housing boom has ended.
Affordability has plummeted to its lowest levels since 2006, when subprime lending fueled unnatural home price appreciation, leading to a near collapse of financial markets and leaving millions of Americans in financial precarity.
Most economists agree that this time is different. In the 2008 downturn, predatory lending (e.g. adjustable-rate mortgages; no-down-payment loans) forced owners to sell when rates adjusted and homeowners could no longer afford their monthly payments. A wave of foreclosures and bankruptcies flooded the market at the same time that banks tightened credit standards, making it much more difficult to obtain a mortgage. It took 4 years (until 2012) for the housing market to turn around.
This time is different
The American homeowner has never been better off. Americans are sitting on record home equity and have enjoyed access to the cheapest mortgage debt we may see in our lifetimes. With much tighter lending standards after the GFC, borrowers can comfortably afford their payments. So why would they sell?
"Inventory is real estate's crystal ball"
2022 began with record low inventory, leading to bidding wars and rapid price appreciation. By April '22, homes were selling for 10% above list price, on average (note: April closed sales generally reflect contracts signed in February or March). When rates crested 5% in mid-April, demand cooled just when the spring market would normally have hit its stride.
Consequently, pending sales (the earliest measure of demand) dropped sharply and homes sat on the market for the first time in recent memory, starting a backlog of unsold homes. In July, pending home sales were down 34% YoY (the worst July since 2012) while the number of homes for sale was up 34% (YoY).
The most recent weeks' data show that home sellers are fighting back! New listings finally appear to be decelerating. Many sellers would prefer not to sell if the price isn't right, and with prices falling in most of the country, the gap between seller expectations and reality is widening.
The year started with new listing levels ~30% lower than the same period in 2021. It doesn't look like we can expect to break above 30% in the near future. Did home sellers "go on strike"?
Prices are falling
Prices are lower almost everywhere in the country, but they're falling fastest in places that saw the largest appreciation over the last couple of years (e.g. Boise, ID; Phoenix, AZ). In King County, the median sale price touched $1M for the first time in history (excluding condominium sales), but in July the median was $900K. What a difference a few months make!
Navigating a changing market can be difficult, but it also creates opportunity. If you need a hand with your real estate decisions now or any time, I'd love to help! :)
Thanks for reading...
-Chad
206-854-3931
chaddierickx.com