With all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), we have heard concerns we may be headed for another housing crash like the one we experienced from 2006–2008. That feeling is understandable, but we’re here to tell you that should be the least of your worries.
It’s tempting to try and time your home buying decision based on current events. However, such an important financial decision should always be based more in your personal household finances than in the day-to-day activities of the stock market. If your household finances look strong, now could still be a very good time to buy a home.
There are many reasons why this real estate market is nothing like what it was in 2008. We’re going to break out those reasons for you over three posts. Here is the second post in the series covering five visuals that prove our market is not gearing up for a housing bubble like we saw in the 2000s.
Reason 3: We don’t have a surplus of homes on the market. We have a shortage.
In real estate, we say that the market needs approximately six months of inventory to sustain normal levels of buying and selling. Anything more than that is an overabundance and will cause prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation.
As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.
That shortage of inventory is especially true in Western North Carolina. Last quarter, the shortage of homes for sale intensified in seven out of our nine counties. Overall, there were 12% fewer homes for sale in Q4 2019 than the same period the year before. However, this shortage is not occurring at all price levels. It remains a strong buyer’s market in every county at the luxury level, as well as many other brackets that are more location specific.
Those facts have been making it more difficult for buyers to find the homes they want in their price range. But on the plus side, they point strongly against another housing bubble.
Reason 4: Houses became too expensive to buy.
The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased for most workers. And the mortgage rate is hovering around 3.5%—its lowest point in nearly 50 years. When taken as a whole, that means the average family pays less of their monthly income toward their mortgage payment than they did back then.
That’s why in the aftermath of the last housing crisis, home tenure has risen to an 18-year high! With the additional buying power you get from low rates, it’s possible to consider higher priced homes that were out of financial reach only a few years ago.
Here’s a graph showing that difference:
We have More Proof
Do the graphs above help alleviate some of your concerns about the state of real estate during the Coronavirus crisis? Hopefully you can see we’re not making the same mistakes that led to the housing crash of 2006–2008.
All real estate is local. In order to make confident real estate decisions, it’s important to have timely and neighborhood-specific information. Contact us today to speak with a Beverly-Hanks real estate agent about buying homes and land in Western North Carolina. View all Beverly-Hanks real estate listings.
This post series adapted from SimplifyingTheMarket.com.