Are We Headed for a Housing Crash?
The media has been throwing around the idea that we’re headed for a housing crash. But is this really the case?
To answer this question, we need to look at the number one law of economics: supply and demand.
Demand is measured by Household Formations, meaning someone is occupying a new property without relinquishing or selling one, like a kid who’s moving out of his parents’ house for the first time. Right now, in the US there are 1.4 million households being formed per year.
Then we have supply, which comes in the form of new construction. Here we look at Housing Completions, or homes ready to move into, which currently equals 1.2 million, after counting for those being replaced.
This means that demand for homes remains greater than available completed inventory or supply, which bodes well for home prices being supported.
What does appreciation look like in your area? Just put your zip code in the comments and I’ll send over a report with your local data.
As you can see from the chart at this time last year there was only about 2,700 active listing available for purchase. At the end of May this year we had over 5,000 active listings. This means purchasing today may be easier than it was at this time last year.
There are twice as many homes to choose from, which means more opportunities for buyers to purchase!
I spoke with a realtor recently who had two listings that lasted on market for 13 days, which is twice as long as the usual turn time we have been seeing the last two years. When they did finally receive offers for these listings each home only got one offer each. Interestingly enough each offer was still above list price.
All of this together is equating to a calmer market for buyers to compete in. There are more options today, which means it could be much easier to go under contract.
Although it may feel like a challenging time to purchase, it’s not impossible. This increase in inventory has already brought a positive shift to the market and eased some of the heat from the overwhelming seller’s market buyers have been caught in the last few years.
If you got demotivated last year because you couldn't find anything you liked, there is more inventory available today giving you the opportunity to find exactly what you are looking for.
We always say the right house comes along at the right time and this increase in available inventory could be the moment you’ve been waiting for!
Unemployment skyrocketed in the United States at the beginning of the pandemic due to continued stay-at-home orders, business closures, health concerns, and reduced demand for products and services. As a whole the country’s unemployment rate has seen little signs of improvement, but when you look at state levels, Utah is doing extremely well.
Utah currently has the second lowest unemployment rate in the country at 4.1% according to the U.S. Bureau of Labor Statistics. Utah’s rate is less than half of the national rate of 8.4%. This means many of those who were furloughed or laid off at the beginning of the pandemic are getting to return to work. The Salt Lake Chamber reports that weekly unemployment claims in Utah have steadily declined for the last 16 weeks.
“Utah’s economy continues along its path of improvement,” reports Mark Knold, Chief Economist at the Department of Workforce Services. “The unemployment rate dropped in August and remains one of the nation’s lowest. It speaks to the energy and prospects within the Utah economy.”
Utah’s economy has done a lot to recover, but it still has a long way to go. Travel and tourism, as well as restaurants took a hard hit in Utah and are not expected to recover for years to come.
While some industries are struggling in the pandemic economy others, like the housing market, are doing quite well. When the pandemic first hit in April there was a big drop in real estate transactions, but the market has since recovered.
The current market is an insane seller’s market. Historically low interest rates and a shortage of inventory has kept the housing market moving this year. There was an unusually high demand from buyers during the homebuying season. Buyers are wanting to move faster to beat out other buyers and lock in a low interest rate.
There has even been an increase in new construction home sales. Utah’s construction industry increased by 7.4% and continues to be Utah’s fastest growing industry over the past 12 months, as reported by the Salt Lake Chamber.
The housing market is thriving so far this year, but what could the second wave mean for the market? Well we can make a few predictions from what we know.
The Federal Reserve has said interest rates are expected to stay low for the next few years. With low interest rates still fueling the purchasing fire, the demand for housing is expected to remain strong for the rest of 2020.
Due to the extreme buyer competition and shortage of homes for sale, home prices have begun to rise and could continue to rise further. In August, the median home price in Utah was $362,000, which is $37,000 more than 2019.
When a market has low inventory, people are willing to pay more for a home in order to beat out other buyers competing for the same home. Sellers are finding the ball in their court in this market, as they are able to price their home competitively to get the best price for their home.
The high demand from buyers and low inventory is expected to continue so we can expect to see home prices move up.
With the pandemic continuing to put many people out of work we can also expect to see an increase of homeowners that will default on their mortgages and be forced into foreclosure. Although foreclosures are not expected to reach anywhere near the level we saw in the 2008 Great Recession, we can still expect to see a few people affected.
And let’s not forget we have the impending presidential election this November. We all know the political climate can greatly impact the housing market, so it will be interesting to see which direction the election goes and how that affects the housing market moving forward into 2021.
If the coronavirus pandemic has taught us anything it is that life can change at any moment. Although we don’t know exactly what to expect from the rest of 2020 by understanding the current trends and economic climate, we can have a better prediction of what’s to come.
