Housing market like 2008? Short answer is No

  • 06/23/22

We are half way through the year and getting questions about the market now that the 30 year mortgage rates have hit nearly 5.81%. Is this like 2008? The short answer is no. The market fundamentals are different. Homeowners enjoy $27.8 trillion in home equity. There are stricter lending rules. Predatory lending practices are no longer prevalent.

 

 

In 2008, 1 out of 4 borrowers were under water. Today, prices have sky rocketed and many borrowers sit on great equity.  Many homeowners own properties with home values that surpass the mortgage principal. Plus, there are not as many risky loans now. In 2008, ARMS (Adjustable Rate Mortgages) accounted for 36% of all mortgages. Currently, they represent around 9%. Also, mortgage delinquencies are at a historic low level of 3%.

Market showing signs of calibration

"Nationally, there might be zero appreciation  in 2023. But, values are not expected to take a nose dive. And if more inventory can provide some relief to buyers, that might be good. Yes, the surge may have lost steam. The fury might have subsided. Prices may not grow at double digits or at all in 2023. But, returning to more normal conditions, well should be the norm and not bad after all. Sellers have to be prepared and manage their expectations that the historically frenzied market we enjoyed were in reality two anomalous years in real estate".

Following two scorching years of sales, the market starts showings signs of a shift.  For the first time since 2019, inventory in May 2022 increased by 8% on a national levelHowever, active listings inventory was done nearly 49% from May 2020. Currently, there are half of homes available for sale than there was two years ago.  There are still less houses than buyers. Inventory is low. We maybe reverting back to pre-pandemic levels.

 

The housing market still remains fast-paced and robust, according to the National Association of Realtor May Report

  • Housing remains expensive and fast-paced with the median asking price at a new high while time on market is at a new low.
  • The May national median listing price for active listings was $447,000, up 17.6% compared to last year and up 35.4% compared to May 2020. 
  • In large metros, median listing prices grew by 13.0% compared to last year, on average. In Miami it grew on average by 45.9% from last year.
  • Nationally, the typical home spent 31 days on the market in May, down 6 days from the same time last year and down 40 days from May 2020.

We are still in seller’s country. But, the market can become more buyer friendly. Overall number of sales dropped a bit in May with active listings increasing. However, don’t expect for prices to really loose value. Prices are set to rise in most markets albeit at a slower pace than we have experienced in the past couple of years. Some predict prices may drop only in 2023 by 5% and then grow steadily by 3% annually. Markets are cyclical in nature and the rapid and high appreciation we have seen is not sustainable for an indefinite period of time.

As Suze Orman shared with Yahoo Finance on June 20.

“I don’t think you’re going to see homes go down really in value. You know, the truth is, real estate always does pretty well during a recession"..If you own real estate, I don't think you're going to see it go down dramatically. Maybe you'll only see it go up 5% or 7% a year."

The pandemia fueled housing market, with low mortgage rates for people to refinance, greater home equities, Feds anticipated response to Covid-19 crisis and the possibility of working remotely gave way to a migration from cramped urban cores to places like Florida.  Also, we have Millenials  in their buying peak. According to NAR March 2022 report, Millenials represent around 43% of home buyers, the most of any generation. All these factors have pushed prices upward. Demand still outpaces housing inventory.

In Florida, closed sales for May 2022 was down 6.9% from previous year to 28,861 and condos were down 14.4% to 13,265. 


 

Miami sold 1,193 homes in May 2022 versus 1,360 in May 2021 (12.3% drop). However, median prices for single-family homes increased 15% to $575,000 from $500,000. Months supply of single-family home inventory is still way low at 2.2.

 

In the condo sector, there was a 7.9% drop. 2,005 condos sold in May 2022 versus 2,176 sold in May 2021. Median price increased by double digits to 27.7% from $325,000 to $415,000. The time it took to sell a condo dropped by 28.7% to 67 days from 94Plus, the ticker here is that months of supply of condo inventory sharply declined by 58% to 2.5 from 6 months.

There might be zero appreciation in 2023. But, values are not expected to take a nose dive. And if more inventory can provide some relief to buyers, that is also welcomed.  The slight increase in single-family homes being offered in Miami for sale went up 0.2% to 2,790 from 2,784 creating more options. Inventory increase and more normal velocity levels may signify that bidding wars may not be as prevalent and houses fetching more than the asking price may no longer be as commonplace.  Rising mortgage rates can affect the sales of existing homes and we may eventually go to pre-pandemic sales levels.  

Yes, the surge may have lost steam. The fury might have subsided. Prices may not grow at double digits or at all in 2023. But, returning to more normal conditions, well should be the norm and not bad after all. Sellers have to be prepared and manage their expectations that the historically frenzied market we enjoyed were in reality two anomalous years in real estate.

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