3 Reasons This Is NOT The 2008 Real Estate Market

Dated: 10/18/2019

Views: 23


3 Reasons This is NOT the 2008 Real Estate Market | MyKCM

No one knows for sure when the next recession will occur. What is known, however, is that the upcoming economic slowdown will not be caused by a housing market crash, as was the case in 2008. There are those who disagree and are comparing today’s real estate market to the market in 2005-2006, which preceded the crash. In many ways, however, the market is very different now. Here are three suppositions being put forward by some, and why they don’t hold up.

SUPPOSITION #1

A critical warning sign last time was the surging gap between the growth in home prices and household income. Today, home values have also outpaced wage gains. As in 2006, a lack of affordability will kill the market.

Counterpoint

The “gap” between wages and home price growth has existed since 2012. If that is a sign of a recession, why didn’t we have one sometime in the last seven years? Also, a buyer’s purchasing power is MUCH GREATER today than it was thirteen years ago. The equation to determine affordability has three elements:  home prices, wages, AND MORTGAGE INTEREST RATES. Today, the mortgage rate is about 3.5% versus 6.41% in 2006.

SUPPOSITION #2

In 2018, as in 2005, housing-price growth began slowing, with significant price drops occurring in some major markets. Look at Manhattan where home prices are in a “near free-fall.”

Counterpoint

The only major market showing true depreciation is Seattle, and it looks like home values in that city are about to reverse and start appreciating again. CoreLogic is projecting home price appreciation to reaccelerate across the country over the next twelve months.

Regarding Manhattan, home prices are dropping because the city’s new “mansion tax” is sapping demand. Additionally, the new federal tax code that went into effect last year continues to impact the market, capping deductions for state and local taxes, known as SALT, at $10,000. That had the effect of making it more expensive to own homes in states like New York.

SUPPOSITION #3

Prices will crash because that is what happened during the last recession.

Counterpoint

It is true that home values sank by almost 20% during the 2008 recession. However, it is also true that in the four previous recessions, home values depreciated only once (by less than 2%). In the other three, residential real estate values increased by 3.5%, 6.1%, and 6.6%.

Price is determined by supply and demand. In 2008, there was an overabundance of housing inventory (a 9-month supply). Today, housing inventory is less than half of that (a 4-month supply).

Bottom Line

We need to realize that today’s real estate market is nothing like the 2008 market. Therefore, when a recession occurs, it won’t resemble the last one. Brought to you by "Keeping Current Matters" and Becky's Realty Group 541-913-9910

Latest Blog Posts

1 Financial Benefit Of Homeownership Family Wealth

#1 Financial Benefit of Homeownership: Family WealthWhile growing up, we were taught by our parents and grandparents that owning a home is a financially savvy move. They explained how a mortgage is

Read More

Will Home Values Appreciate Or Depreciate In 2020

With the housing market staggered to some degree by the health crisis the country is currently facing, some potential purchasers are questioning whether home values will be impacted. The price of

Read More

Unemployment Hope On The Horizon

Tomorrow, the unemployment rate for April 2020 will be released by the U.S. Bureau of Labor Statistics. It will hit a peak this country has never seen before, with data representing real

Read More

How To TestDrive A Neighborhood While Sheltering In Place INFOGRAPHIC

Some Highlights Staying at home doesn’t mean your search for a new place needs to come to a standstill. Check out these tips on how to explore other neighborhoods virtually in the

Read More