Where are we currently at?
There is movement in the interest rate market. This is to be expected as the economy improves. Home appreciation is rising as well. 2020 brought the gift of valuing our home. People fall in love with homes, not interest rates. We do not anticipate people to shy away from purchasing homes because of an increase in interest rates.
Home price appreciation
2020’s final home appreciation was 10% in residential real estate. The Limited Home Supply (graph) displays that for 13 straight years we’ve been below annual units completed (builds). From 2004 to 2006 you had seen an inventory of homes increasing as well as prices. We expect much more homes to be built this year. As we have to address the need for more inventory of homes.
If you look over to the right you see the Year Over Year Housing Inventory Graph, we have a dire need for inventory as you see we are -48.7% for housing inventory as of February.
Are we living out 2008 again?
No, we are not reliving 2008. All the data supports our reasoning that we are not reliving 2008. The next popular question is, well are we living out 2005 or 2006 again? Before the crash came the prices of homes soaring, but you know what else was rising? Inventory. Where we stand today is very different from where we stood in 2004 through 2008.
Today, we have home appreciation rising which is leading to home prices rising, but inventory is low. Adding to the list of key differences is the shift in lending standards and housing affordability. Today it is much more difficult to qualify for a home than it was right before the housing crash. Today you must demonstrate that you are able to pay your mortgage. It’s important to note that the high demand for homes before the crash was largely inflated. Home prices were rising, inventory was rising and there were numerous programs allowing almost everyone to get approved for a loan. Think about where we are today. Does that sound like 2021? No.
So what does this mean? All data points to our current housing market being very different from the housing market crash. The biggest similarity between now and then is home appreciation, but even that isn’t the same. Let me quickly explain. The housing appreciation prior to the crash was called “runaway appreciation” for a reason. People were buying and selling fast to cash out on the equity. Demand was inflated by the fact that home prices and inventory were rising, and almost everyone was getting approved for a loan.
As we look at the data and analyze these differences we watch carefully to see what similarities are there for comparison of today’s market to the housing crash and years just prior to the crash. As we dive into this information we see the only similarity there are the rising home prices. There are far more differences between today’s market and the market of 2008. We choose to listen to the data and not listen to assumptions made purely based on fear. We are confident that the demand for homes isn’t going anywhere despite the rising interest rates. Our biggest concern is the need for more inventory and we expect much more construction to take place this year.
As always, we are your friends in real estate, here for all your real estate needs.
The Freund Group with Compass Real Estate.