A lot of economists and legislators have bee trying to predict whether or not we're facing another housing market crash. Fortunately, it doesn't look like we'll be seeing anything too rocky in the next couple of years. The real estate market is like any other economic system in that it experiences ups and downs with static periods in between. The general estimation is that every ten years there is a pivot in one direction or the other. We're almost 10 years out from the last crash, which was a magnificent one. Hopefully, we'll never experience that kind of housing crash ever again. That one was largely due to predatory lending practices and bad judgement from most parties involved. The bubble of the mid 2000's was a real anomaly. That was the first time that we had seen such a surplus of sub-prime mortgages with very little oversight. The sheer number of tricky mortgages was what caused the last crash to be so catastrophic.
Many people think that we're experiencing a bubble at the moment and that we're due for a market correction. I disagree. I think the market is a little too competitive right now, but it has drastically readjusted since the fall. If things stay this way, I believe we can have a very healthy market for quite some time. I have closed 12 properties on both the buying and selling side this year and I have another 4 in escrow. I have found myself making offers for clients in multiple-offer situations 3 or 4 times this year, however, I have not seen either party sweetening their offers with anything irrational. And of those 16 transactions this year, I have not had one property appraise under value. When properties tend to appraise below the contract price, it is often an indication that the market is running away.
Fortunately, according to RealtorMag's article entitled, "6 Reasons Why a Housing Crash Isn't Likely," there are many indicators that point towards the market remaining healthy for some time. Here's a quick breakdown of those 6 items according to the article:
- Fixed Rate Mortgages: This is the primary reason that we will not be experiencing a crash any time soon. The previous fallout was largely due to adjustable rate mortgages that went wild and made it incredibly difficult for some to make their payments. Fixed rate mortgages are the most common and hopefully it will stay that way. Fixed rate mortgages mean that you know what your monthly obligation will be for the lifetime of the loan and there can be very little deviation to that amount.
- Old Foreclosures Are Being Finalized: There has been a huge uptick in bank repossessions this year, but that does not mean foreclosures. Banks begin the foreclosure process sometimes months and even years before they fully repossess the property. When the market rebounded, the banks responded by finalizing their foreclosures so they could put the repossessed homes back on the market. We have not seen an increase in new foreclosures, but rather an increase in banks finally completing their foreclosures so they can resell the properties. This means that there is not new distress, but rather a completion of old distress.
- Fewer Foreclosure: This is just a continuation of what I said in the last bullet. Currently, the foreclosure rate is about 2.1%, which is the lowest since 2007. That's great news. That means there are less folks having difficulty paying their mortgages. Those that are finding themselves in default are probably in that position for personal reasons rather than predatory lending practices.
- A Rise in First-Time Buyers: There are many more first time buyers entering the market than the last 10 years. There are a number of programs for first-time buyers (products/programs like the FHA mortgage) that are making it much easier for first-time buyers to purchase homes. There is also a move to reduce mortgage insurance premiums soon, which is a hinderance for many first time buyers. When first-time buyers are active, it is a great indicator of a healthy market!
- The Economy is Generally Healthier: Economics are cyclical. When the job market is strong, the housing market is strong. The recession may have largely been due to the housing crash, but the recession is now over and the job market has rebound almost to pre-recession levels. Employees have the funds to purchase homes and that is what keeps the housing market churning.
- There Is No Surplus of Homes: This is another big one. When there are too many homes being constructed, it causes an overture of homes and that has a negative effect on the market. There are far less available homes at the moment than there were up to 2006. That means that the market can stay competitive, which is a good thing. Too much competition can be bad, of course. Luckily, we seem to be an a moderate inventory of available homes.
I hope that this has all been good news! There will eventually be another crash. There are always slumps in the economy and the housing market just happens to be a large portion of the overall economy. In fact, slumps in the housing market can be quite beneficial to the consumer. It is necessary that any economy be checked from time to time to settle back in to a healthy medium. However, we don't seem to be in any danger at the moment! Hopefully, we can enjoy a healthy market for a long time!
Remember me when you need a Realtor. I'm always happy to help.
Troy Franklin Gandee
Realtor®, ABR, e-Pro, REInvestor