If you have tuned into almost any news broadcast recently, you’ve likely heard a story speculating on the “potential” of a real estate market “crash”. Stories and headlines meant to grab your attention but without much context. Our goal is to share details and data, so that the real estate decisions of our friends and clients can focus on facts and long-term goals. We consistently seek out and listen to multiple experienced, knowledgeable professionals who know the real estate industry well. Then, we do our own homework; because although national trends can hit close to home, real estate is always local.
Data from our Kansas City metro MLS shows us that the market is indeed shifting slightly, but with a very different outlook than the housing crisis of 2007-2009. That’s due to several key differences in the underlying strength of current homeownership.
Mortgage lending standards are now considered to be the cleanest in history. Back then, home prices didn’t crash because they had climbed so high; rather home prices crashed because, among other things, so many borrowers could not make their monthly payment. Remember the movie “The Big Short”? Leading into the great recesasion, many mortgage loan products were riskier; about 40% of homeowners had interest-only or short-term adjustable rate mortgages – today, near 99% of homeowners with mortgages have solid 30-year or 15-year fixed interest rate mortgages. Loans which are far less likely to put a surprise stress on a household budget when the economy inevitably shifts. Also back then, some 26% of homeowners owed more for their home than the house was actually worth; today, the number is closer to just 1.5%. Today, 95% of homes with mortgages have at least 10% equity, plus 37% of homeowners have no mortgage at all.
The driver of the current real estate market remains supply and demand. With inflation rates and the resulting rise in mortgage interest rates, the number of potential buyers unable to make an investment right now has increased. This slightly lower demand will help home prices stabilize, and those buyers still in the market will have somewhat less competition and more flexibility to protect their due diligence in the purchase. That said, the current demand for homes still outpaces available inventory, and as millennial buyers (a generation similarly sized to the baby boomer generation) are coming of age to buy their first home, and as supply continues to be constrained by costs for land and building materials, the prices of available homes are highly unlikely to decrease. Our professional resources predict that the higher interest rates will tip the balance of the market enough to hamper the exuberant double-digit appreciation we’ve been experiencing and return real estate closer to its historical average annual appreciation of 4 to 5% for several years to come. In a recent podcast, Dave Ramsey, the renowned money principles personality, said now continues to be the best time to buy a home, because prices will not go down. It is also an excellent time to sell your home, because buyer demand remains high.
One thing is certain – having an experienced, client-focused real estate professional in your corner will help you navigate every real estate market and reach your long-term goals. We are here to help you. Let us know if you have questions about buying or selling anytime.