Rick Sharga from ATTOM, a property data provider was invited to BiggerPockets’ BiggerNews podcast to discuss the current housing market conditions in the US and why we have not seen a market crash yet (despite what some “gurus” say)
- Still a strong demand for houses but slowing (19 consecutive months of lower home sales on year-over-year basis) but still high enough to keep price up
- On the other hand, credit applications are decreasing and consumer confidence is at its lowest for a decade due to Covid, high inflation (including for housing prices, +17% year-over-year), the war in Ukraine, mortgage rate doubling in one year increasing monthly payments by 27%
- Inventory and days-on-market slightly up from historic lows as the market seems to normalize
- No national bubble or crash expected but some local markets (Bays area, Austin, Boise…) may see a correction, especially in the higher-end of the market where there is fewer competition. Rick defines a correction as a 5-10% drop in market value before recovering
- Current market conditions are totally different from the Great Recession from 2008 (which was caused by an over supply of homes for sales and many more under constructions, followed by foreclosures when the lending frenzy stopped).
- 1.5 to 2 months of supply currently on sale which is the third of what we should have in a healthy market. New construction also lagging due to supply chain disruptions
- Demand is demographically-based, driven by millennials which are looking to buy their first house.
- First-time buyers represents 26% of loan applications, versus 46% during the Great Recession), meaning that today, most buyers have a lot of equity they can use to fund large down payments which lowers their monthly payments. There is currently $27 trillion in home owner equity, some of the amount will be used for home improvements through home equity line of credit rather than moving out.
- Rental prices have gone up faster than mortgage payments
- Delinquency rate at its lowest since the creation of the metrics in the 1970s
- Good economics conditions : the economy is creating jobs and the unemployment rate is very low
- More cautious and thoughtful money coming from individual investors today, with focus on longer term investments as 60% of investors are rental property owners. On the flip side, the focus nowadays is truly on value-add improvements rather than the arbitrage strategy which was like day-trading real estate before the Great Recession. Lenders have also tightened credit conditions.
- Inflation will remain the wild card as it hits people on the low-end of the market, that is to say, people who already have problems buying gas and food
- The current market favors investors who can pay cash
- The rapid increase in some markets is due to investors moving from high-price markets to lower-price markets like Boise, Idaho (+45% in one year). Utah and Phoenix have also experienced a similar phenomenon
- During the last recession (which was the only real housing market crash in 100 years), 33% of all home owners had negative equity in their homes, versus 90% of people in foreclosures today who have positive equity. Delinquent borrowers therefore manage to sell their homes before the auction cycle and very few properties are eventually repossessed by lenders contrary to 2008.