COVID and Real Estate
I have had many people reach out to me the last few weeks with this question, and I am honored that many would value and trust my opinion on the matter. While there is no magic “crystal ball” to predict the future, we can look back on the past and find similarities and differences. These facts may help us predict what is to come in the future. I recently came across an article on “Keeping Current Matters” that has a great breakdown on the difference between the 2008 housing crash and our current 2020 pandemic.
See, in 2008 we faced a housing crisis. Today we face a pandemic. Yes, the pandemic will have an affect on the economy, but I do not believe we will see the same thing with the housing market that we did in 2008. I’ve heard people say that there have been 20+ million people that have filed for unemployment. I understand this is what happened during the 1928 great depression. However, many of these people will return to their jobs once the economy opens up again.
“Keeping Current Matters” talked through a few factors that I am going to dig into within this blog below, comparing 2008 to 2020 and how it may predict the future. Let's take a look into: Appreciation, Mortgage credit, Inventory of homes on the market, and Use of home equity.
When we look back at the home appreciation of 2000-2005 leading up to the crash, we see that there was an average of 9.3% per year, with one year being 12.5%. From 2014-2019 we’ve seen the appreciation average at 5.1%, with the most at 6.4% in 2017.
When there is too much appreciation, we know that we are leading up to the “bubble” and eventually the market will have to correct itself. Though in my opinion, we are not at a “bubble” like we were in 2008.
The Mortgage Credit Availability Index is a monthly measure by the Mortgage Bankers Association that gauges the level of difficulty to secure a loan. In other words, the higher the number, the easier it is to get a loan. Since the crash of 2008, there have been a lot of changes making it more challenging to obtain a loan. This is a great thing to help protect the housing market because it helps filter out people who qualify for a mortgage and are less likely to get foreclosed on.
Inventory of Homes on the Market
Months supply of inventory is defined by how many months it would take to sell out all of the active listings on the market if no “new” listings were to come. It is considered to be a “Sellers Market” when there is less than 6 months supply. This means there are low inventory levels. It is considered to be a “Buyers Market” when there is greater than a 6 months supply. This means that there is a lot of inventory for Buyers to select from.
During the crash of 2008 we moved very quickly from a “Sellers Market” into a “Buyers Market”. In 2008 the months supply of inventory was 11 months! Today the months supply of inventory is right around 3-4 months. So, we are very far from have an overload of properties on the market.
Use of Home Equity
This chart below from “Keeping Current Matters” uses data from Freddie Mac showing the amount of equity people are cashing out in their homes. In the three years leading up to 2008, $824 billion was cashed out, and many people were using that money to go on vacation, purchase new cars, new boats etc... In other words, they were using the money to purchase “lifestyle” upgrades. In the past three years, $232 billion was cashed out, which is significantly less. Many people are using this money to improve the value of their home through home renovation projects, or they are using the money to further their education.
We WILL get through this TOGETHER, and we know that hope is more contagious than fear.
KCM Crew. “Think This is a Housing Crisis? Think Again.” Keeping Current Matters, 15 April 2020, https://www.keepingcurrentmatters.com/2020/04/15/think-this-is-a-housing-crisis-think-again/