Where is the Market Heading?
So I made a quick fun video the other day covering this briefly, but I wanted to take a second and really dive into the housing market and talk about what’s happening all around us. I’ve been seeing plenty of “the end is near!” And “the market is going to crash in flames!” headlines, and here is why I just simply don’t see that happening. Check it Here
Sub-Prime Lending and New Builds
Let’s start off by looking at a little indicator: new home construction. In this country, before the 2008 housing market crash, new build homes were being constructed in mass as well as their lending being tied to what’s call a “No-Doc” loan. In essence, all that was needed to secure a 30 year mortgage was a paystub, and a commitment to be gainfully employed and you would be able to secure a home loan. These are what’s more commonly referred to as sub-prime loans. The problem with a sub-prime loan is that since buyers are not properly vetted in their spending power they are much more likely to default on their loans.
In 2008 we had the perfect storm, sub-prime lending and a record high of new homes being built. In essence, anyone and everyone who wanted to move into a home, even if they could not afford a home, was able to buy a home.
When the people who were granted sub-prime loans could no longer afford their mortgage, they defaulted on their loan causing the international markets, markets that were largely tied to bundled mortgages, to plummet. In the aftermath what was seen was a colossal increase of available homes and a tightening up of lending standards to help prevent borrowers who are more likely to default on their loans from being able to purchase a home they cannot afford.
So why does this matter, and how does it apply today? The second indicator I want you, the reader, to know is for us to meet the demand of home buyers, we’d need to be building at least 1.5 million new homes a year to reach market stabilization. If you reference the graph below, you will see that we are in fact CLOSE to meeting those numbers as of 2020. But here’s the problem: the 2008 housing crisis.
 |
| Yearly New Housing from 2000 to Now |
Due to 2008, builders suddenly largely stopped producing new homes. This began a deficit that with time grew larger and larger. Fast forward to 2022, we are faced with severe inventory shortages and it’s not completely uncommon for new construction homes to have hundreds to thousands of people on wait lists for the ever dwindling supply of new homes.
For us to stabilize the market, we would need over 3.5 million homes per year to catch up with market demand. This means that until we begin to build 3.5 million new homes a year we will continue to be in a housing shortage, and demand very likely could trump supply for some time.
Its Always the Millennials
So if you’ve been keeping up with generation populations, which who hasn’t? You, dear reader, would know that the biggest generation in the United States is now the millennial generation. Here’s the problem, millennials now make up 37% of homebuyers in the market. Making this generation this largest share of home buyers in the market. Allow us now to compound the fact that it’s not just millennials buying homes, and you can see that the issue at hand simply gets worse. Right now millennials are at the home buying age and are READY to buy, but CAN’T, there aren’t enough homes.
Now, add to this that every new construction is a single family home and you can start to see the issue with the idea that the market is going to simply “crash”. There are way too many people wanting homes, and quite literally the homes they want do not exist. Even the with new construction steadily rising to reach the point of inventory stabilization we’re simply not even in the ballpark.
 |
| Monthly New Housing this Past Year |
Okay, but interest rates?
Yes, interest rates are starting to rise from their all time pandemic level lows, but we’re still at historic lows in both interest rates and inventory. Even if some buyers decide they are going wait and see what happens and not buy, we still do not have enough inventory to make much of a dent.
 |
| Past Few Decades Interest Rates |
For the buyers who decided last year that “this trend will pass”, now they are faced with increased home prices, less buying power, and more buyers entering into the market year over year.
Lets Talk Future
Looking at this year, while I don’t have a crystal ball that will say for certain how much home prices will increase, I do have much smarter people than I to help translate market data.
2022 Home Value Projections
Across the board, most experts agree home prices will continue to rise this year. The average forecast calls for a 5.1% increase this year in home prices. For those of you who state, “yeah but eventually these are going down, right?” Here’s what I see:
 |
| Home Appreciation Forecast |
I see a steady increase in home values on average nation wide until at least 2027. This doesn’t take into account that in our market, the North Texas market, home prices are expected to increase slightly more than the national average.
What About the Looming Recession?
I’m glad you asked! Since the 2008 hosing crisis, which we have already covered, many people have associated the word “recession” with “lost home value”. Here’s why I think they’re misguided.
 |
| What Home Prices do in Recessions |
In the last five recessions home prices actually INCREASED in a recession, rather than decreased. The 2008 crisis obviously being the outlier considering as we’ve already determined the housing supply was at all time highs and demand at all time lows. So while many experts are warning of a potential recession looming, this is not because of housing, and your home will continue to appreciate in value.
So Am I Doomed?
Where there’s a will, there’s a way. Market conditions such as these are simply the new normal. There is no previous experience in the modern home buying market that remotely mimics what is happening now, but that’s not something to fret over. Due to the market conditions, we as Realtors have had to become more savvy in ways to secure homes for our clients and best the competitors when buying and selling. Two common themes I hear in this market are “I want to sell, but how can I buy?” or “I am a first time home buyer, how am I supposed to compete?” Fret not dear reader, for innovation thrives in times like these.
As a response to the plight of consumers, various programs have emerged that seek to both create better conditions for first time home buyers to enter the market, as well as allow for sellers to buy their next home BEFORE selling, rather than after. If you’re in either of these boats, and want to dive head first into the market reach out to your local Real Estate expert to get started. Or better yet, reach out to ME! Together we’ll navigate these unprecedented times and will sail into the sunset of home ownership.
In Closing
The notion that the market is going to “crash” and home values will suddenly “plummet” is not a notion I think is accurate at all.
• We need 1.5 million homes to be built every year to reach market stabilization.
• We currently are in a 3.5 million new home deficit every year.
• There are more buyers entering into the market every year and less people selling their homes.
• Interest rates are slowly rising, but are still historically low, waiting could cost you thousands.
• Home prices are expected to continually rise until at least 2027.
• Recessions are typically GOOD for housing appreciation, not BAD.
• Savvy market professionals have new and exciting ways to win in todays market and ease the stress that it can cause for consumers.
Sources
1 U.S. Census Bureau, State Population Totals and Components of Change
