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Is the Housing Market About to Crash?

Is the Housing Market about to crash? What is going to happen to your home value?

Whether we spoke 20 minutes or 20 years ago, you’re our client, and we care deeply about you and your real estate investments.

There is a lot of yelling, crying, and general gnashing of teeth over the current changes in our real estate market. I am going to break this down to that you can see what I see. A lot of people are talking about how real estate values are about to crash. But are they?

First, you may or may not know that I began my real estate career in the 1980s if you can believe it, so I have been around. I’ve been through FIVE market shifts and one bubble/crash in my career, so I know what I see right now.

Let’s clear up some confusion. We are talking about two subjects that I see some “experts” blending: ‘a market shift to a buyers market’ and ‘a market bubble or crash’. These events are NOT the same.

Making sure we’re all on the same page, a “buyers market” or “seller’s market” simply means that the market favors one or the other. Due to buyer demand and a shortage of homes on the market, we have been in a seller’s market for the past few years. And it’s definitely changing right now. In my opinion, it needs to, for stability. But will we crash?  I’m telling you what I know, not what I heard.

**By the way, my information is from nationally reliable sources, such as Keeping Current Matters and reputable sources, which gather the most accurate real estate data. These are real numbers.**

Historically, the real estate market shifts back and forth from a seller’s market to a buyer’s market every 8-12 years. And these shifts have been precipitated by a recession.

This is where it gets interesting. In the last six recessions since the 80s, homes actually GAINED value in FOUR out of the six recessions. That’s four out of six!

Crash

In 1980 and 1981, we had a recession fueled by an energy crisis. Homes appreciated 6.1% in 1980 and 3.5% in 1981—almost 10% appreciation in those two years during that recession.

Ten years later, in 1991, we had another recession, again related to oil. 1991 was the first time since keeping records that homes actually lost value, but it was a modest 1.9%.

It felt worse because here in Oakland County, we trend an about 6% appreciation per year. When you lose 1.9% of the value that’s a 7.9% spread, so then, much like now, the news reports regarding housing were very alarming. We thought we were all going to lose our businesses and maybe our homes. But when the dust settled on that recession, the actual loss of value was only 1.9%.

Again ten years later, in 2001, right on schedule, another recession. It was the Dot Com Bubble. This recession was due to the crazy speculation of tech and internet stocks, but then the stock market plummeted. A lot of people lost fortunes, retirements were threatened, and large companies went out of business. It was a very hard time for many people. Yet, home values rose an average of 6.6% nationally.

Fast forward seven years later, in 2007, we entered the Great Recession. This is when all hell broke loose for real estate nationally. Life ceased to exist as we real estate agents knew it, and I wondered if and how we would survive. It hit the real estate industry and homeowners hard. There are a lot of contributing factors to that mess; watch the movie “The Big Short” for an entertaining explanation. It’s pretty accurate. (Plus, it has Ryan Gosling, Steve Carrell, and Brad Pitt, but I digress!)

Back in 2007, real estate was a complete rodeo. Lenders were giving loans merely on STATED INCOME.

“How much do you make annually, sir? 347,000? Oh great, sure you qualify for that $1M jumbo loan.” Zero documentation to support the stated income. Everyone could get a loan with a decent credit score. Many appraisers were right in the lender’s office, working for them. Dishonest appraisers were colluding with lenders to overinflate home values for financial gain; homeowners were tapping their equity regularly to fund lavish lifestyles they couldn’t otherwise afford; it was a mess.

The prices of homes kept expanding and expanding until…you guessed it. The bubble burst and  values crashed. By the time we hit bottom around 2010, the average loss of a home’s value nationally was 19.7%. Here in Oakland County, the loss was much closer to 30% and Sometimes more! It was unprecedented, and it was tragic for our clients. Shortsales and foreclosures dominated. That was a real estate bubble, accompanied by a shift to a buyers market. It lasted about five years and recovered in 2011-12. The Great Recession was a boon for real estate investors.

BUT…Things are vastly different now than in 2007.

Congress has since enacted laws that brought sweeping changes to the entire industry.

There are rules to prevent collusion by appraisers and lenders, third party appraisal reviews to prevent over-inflating values, and new rules requiring transparency in the fees charged by the lender to close a loan. There are much tighter lending guidelines as well. If you happen to be self-employed like we are and are try to get a mortgage today, you know what I mean. It’s much more difficult today. You have to document your income multiple times.

Here we are in 2022, and historically we are right on target for another recession. But here’s the thing: I do not see any of the same indicators of a housing bubble that I saw back in 2007. The fact is home prices increase or decrease based on demand.  There are fewer homes available for purchase now than there were in 2008, yet we have our millennials of home-buying age, making demand much greater than in 2008.

Unless something drastic happens that we can’t foresee, home prices are going to continue to be stable.

What we have right now is a very dramatic SHIFT from a seller’s market to a buyer’s market, created in part by the Feds in strategically raising interest rates to control inflation. It would take a day-long class to learn how inflation affects the housing market, and I’m no economist. But there are a lot of resources around to teach us how those two are interconnected, so educate yourself.

My message is this: let’s calm down. This is nothing like the market of 2007-8. I was there, I lived it. and I studied it.

Here’s the truth: Roger and I were both 22 years old when we bought our first house, and you know what our interest rate was? 12.5%. We refinanced that house a couple of years later when the rates dropped, sold it with a nice profit a few years after that, and moved up to a bigger house we could afford. That’s how it works! That’s how it has always worked.

So you know when you should buy a home? When you need one.

The current interest rates will change how MUCH home you can buy, for sure. But that’s a lifestyle shift we can ALL make for a basic need like shelter and an investment in our future.

Can we live in a home that’s a bit smaller than we anticipated? Can we stop unnecessarily remodeling our homes like it’s spring fashion season? Can we maybe curb some personal spending and learn to live more frugally? I think we can.

It’s a little scary right now, sure, I’m not downplaying it. But I’ve been here many times before. My advice is to step away from the noise and chaos. Take a realistic look at your financial situation. We can help you do that. Take a walk, take a knee, take a breath. Will most of us need to make adjustments in some areas, sure. But I think we’re going to safely navigate this one, too. Homes will still sell, and buyers will still buy. We’re going to be ok.

If you have questions or need help learning how to adjust your spending, we are here for you. You can always find me on our website or call me at 833-333-GWEN.

Thanks for being part of The Integrity Team. You belong here.

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