How to Answer the Tough Questions
BLINK! And the market's changed. It happens all the time. A market moves from hot, with homes selling in days, often for more than list price to ice cold, seemingly over night. Price cuts take hold, days-on-market (DOM) increases and home owners and sellers are often wondering what happened?
In the mortgage world, rates shift each and every day, sometimes drastically. Last week it was REFI BOOM HERE WE COME! And by Friday, lenders were wondering if rates would ever stop increasing (they did)
Perhaps the most popular term in the real estate community last year was "Shift". In recent weeks, it's been "Recession". In both cases, the real theme underlying the terms is "Change". How is the market changing? What does it mean for consumers and real estate professionals? These aren't easy questions to answer, primarily because most of the people in the thick of it don't know the answers.
None of us have a crystal ball - some of us (those in the real estate and mortgage industries) don't have a clue. Some have our heads in the sand. Others have an idea - I'd like to think I know as well as anyone where things are headed, but the reality is, all I have to go from are experience, data, and what I see. And that's what's driving the conversations I'm having.
In the lending world, when a client says "but I've heard there's a recession so we're going to hold off on buying", I go back to the data. I educate them on history, economics, and what is most likely to happen. We talk about reality, and strip the conversation of emotion.
The reality, supported by massive amounts of data, is that regardless of economic conditions, home ownership is usually a good idea. In today's market, it's a great idea. Look at this image - it shows home values, nationwide, with the shaded bars being periods 
of recession. While the value trend is down, it remains positive in every recession with the exception of the Great Recession (which was caused by a housing bubble and extremely out-of-whack supply VS demand). The only other time home values went down was for a very slight blip in the early 90's, before rising again for 15 years straight.
Home appreciation may slow, but while other investments (think 401k funds, stocks, etc) typically go negative in recession, home values continue to climb, just more slowly. Don't believe me? You don't have to. But the data is the data.
But what about the dip that accompanied the Great Recession? Well, that's a different blog for a different day, but in short involves factors that are nothing like those we see today. Birth-death rates, the effect of Roe V Wade on the demand of entry level housing in the early-mid 2000s, piss-poor underwriting standards on mortgage products, the repeal of Glass-Steagall, the greed of home builders who either didn't see it coming or didn't care to, and the birth of their McMansions. It was a perfect storm, really, and nothing like today's market. Just look at supply of housing - in 2006 it peaked, far outgrowing demand (household formations), and today, it's far more in line with historical averages, with a larger than average demographic reaching home ownership age (the millenials) - that means the housing shortage is expected to continue, and the data supports it. That's more good news for home values. Bad news for those "waiting for the dip".
What if there's a recession? It's a fair question with a lot of uncertain answers. Who knows what will happen to jobs, wages, the extension of credit, and other areas. But if there's a recession, housing is as good a place as any to put your money - historically, when the economy's in the red, housing stays in the black. Based on the data, this time should be no different.
PS - in a recession, interest rates tend to drop too, as if we needed an added housing bonus!
Questions about home buying or the marketplace? Reach out and ask an expert here! We're always happy to answer the tough questions and offer advice.
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