When Is The Market Going To Crash?
Are you wondering when the market is going to crash? If google search statistics are any indication, a LOT of people are, and we're here to unpack the data to answer your question.
First consider:
average home appreciation over the last four years is 6.3% vs 10.3% leading up to the Great Recession
leading up to the crash, lenders would lend to anybody who could fog a mirror and, as many of you know now, it's not that easy to get a loan now, leaving us with way less default risk in the market
people were using their homes as piggy banks before the crash and aren't doing that now
tappable equity is at a 20-year high
interest rates are still very low
What Caused The Great Recession?
The Great Recession was a direct result of Wall Street creating exotic investment instruments out of buckets of real estate mortgages. Banks couldn't crank mortgages out fast enough to fill the demand and the investments were too complicated for investors to understand how shaky the underlying mortgages were. The game went on until the music stopped. And when the music stopped, we were more than one chair short. The ripple effect was devastating.
What's Different This Time?
Right now, we already had a shortage of housing units (not a surplus like 2006), but with the health pandemic, people hunkered down and didn't want to take risks by selling. Low SUPPLY was suddenly very low.
On the flip side, we have buyers who made money in the stock market in recent years, who want to take advantage of low borrowing rates, who want to parlay equity in their existing home to another home and/or who simply have more money because they just spent a year in lockdown. And don't even get me started on the multi-unit developers who are being allowed to buy up R-1 and build multiple units on a lot. This is all to say that DEMAND is high and competition is fierce.
The hit our economy took last year has not hurt homeowners for the most part, so don't look for a sudden flood of distressed units to hit the market. Lots of borrowers entered forbearance, but anecdotally I was hearing that financial planners were advising people to take forbearance even if they didn't need it and bank the money and/or put it in the stock market.
In fact, of the cumulative exits from forbearance as of March 7, 2021, only 16% of borrowers were still in distress. And based on the equity statistics, those borrowers will likely be able to sell their properties at retail and walk away with money in their pockets, even after paying selling costs.
Most importantly, our current economic challenges are not the result of something from within the real estate industry. Real estate has, in fact, been a beacon of light during our downturn.
Survey Says...
There simply are no leading indicators to tell us that we're looking at any kind of real estate crash. Supply will continue to be constrained and demand will continue to be high (at least until interest rates start rising dramatically). We may see some price "softening" as more listings make their way to market, but interest rates will rise, too. There is no scenario coming that calls for prudent buyers or sellers to wait on their plans to buy or sell.
That google statistic really caught our attention. We want our clients to know, there is no crash coming. Clickbait is starting to appear about inflation, but inflation is not a "today" problem. Of course, we'll continue to watch.
If you have questions about something in the news, ask us. We read tons of news and keep close tabs on market trends, both national and local. Contact us through our website, by email at team@siliconbeachedge.com, or by calling/texting 424.228.9969.