Here’s the July Bulletin I sent out to my clients this month. I hope you find it informative.
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I wanted to send out some observations on the housing market in terms of stability. I talk to a lot of people who worry that the market is headed for a downturn, but I don’t think this is what’s actually going on with the housing market at present.
I think we’ve become so accustomed to the scenario of boom, then bust, and then recovery again, that we can’t get off the roller coaster. But the market has left this cycle, and shows no sign of returning to it. It’s time to get off the roller coaster model, and find our land-legs on solid ground.
During the recovery, home values appreciated at a higher rate than is normal for the industry, sometimes as high as 10-14% annual gain. Values had some catching up to do, and they have now caught up.
In a normal housing market, such as we had in the first few years of this century, an annual rise of 3% is the normal appreciation path. We’ve forgotten this, because it was so long ago that we had a normal market.
The major rise in values happened in a boom from 2004 into 2007. The downturn, as we all remember, happened in 2008. Recovery really started, to my mind, when the market turned from a buyer’s market to a seller’s market around early 2012.
It’s still a seller’s market, but only because inventory is scarce. Inventory has been tight throughout the recovery, and this is what helped restore home values in a short few years.
Short inventory still makes sellers think they hold the whip hand, but this is not always the case. Buyers are not acting as they would in a typical seller’s market – they’re not rushing into bidding wars anymore.
Home prices are now where they would have been at a normal appreciation without the roller coaster of ups and downs.
Buyers now won’t pay over fair market value, and lots of times they exercise their own leverage by refusing to buy at an inflated price. Some metro areas have been stalling out lately because prices went too high, in that giddy kind of fever we often see, and now they’re correcting to normal.
In reality the market is approaching balance, the way it was before 2004, and the way it’s supposed to be. If we had more inventory, it would be perfectly balanced, and neither a seller’s market nor a buyer’s market. Low inventory continues to slow down the pace of business, and it will take more time yet to see enough transactions happening to call it a perfectly normal market.
But apart from inventory, we have a very efficient market. The industry is working well. People are moving, lenders are making loans, homes are appraising in line with agent expectations, and deals are closing. Credit is high, equity positions are sound, housing starts are up, and the millennials are coming on as strongly as they can.
I’ll send out a more detailed market analysis in the fall, but I did want to send this note to address fears of a downturn.
Through the past sixteen years we’ve been on a roller coaster ride, first up, then down, and then up again. These fluctuations have left their mark on our culture, but we shouldn’t become accustomed to a wildly fluctuating housing market.
What may look like heading into a downturn, is really the roller coaster ending. And normal is good.
— Stephanie
