Focus on concrete data sets of the housing market, not excessive and sometimes alarming media hypes, to understand what’s really happening with efforts to achieve a sustainable, balanced in the housing market over the long-term.
Substantial Data Sets More Predictive of Future than Click-Bait Hype
How many times have you read/heard headlines that predict the demise of the real estate market? Sure…mortgage rates are climbing, home prices are rising, and a lack of new for-sale inventory continues BUT, the demise of the real estate market? Really?
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No. The real estate market isn’t crashing. According to Mark Zandi, Chief Economist with Moody’s Analytics, lender underwriting is substantially better than it was on the cusp of the Great Recession and housing crash of 2008, credit scores are substantially higher, and the housing market is “tight” with the combined vacancy rates of homes and rentals sitting at an historical low of just 3%.
No. The real estate market is not crashing…it’s merely correcting itself after a ten-year stretch of skyrocketing home sales, skyrocketing home prices and historically low interest rates.
When discussing the health of the housing market with your clients, focus on these three data sets: homeownership rates, single-family housing supply, and mortgage originations.
Dating back to 1965, the historical average of homeownership rates in the US stands between 65.3% and 69.2%, the market’s peak in 2004.
In Q1 2022, according to the US Census Bureau’s latest quarterly data, the seasonally adjusted homeownership rate is 65.4%, unchanged from Q4 2021.
Prospective homebuyers need to know that current homeownership rates are just slightly above the historical average of 65.3% and are substantially lower than 2004’s high of 69.2%.
Single-Family Housing Supply
According to any and all housing industry experts, the US has underbuilt single-family housing since the early 2000’s. Relative to new household formations, this underbuilding has caused and continues to cause a critical housing shortage in this country. Some industry experts indicate that the country is “short” on 2M – 4.3M housing units due to the fact that people are forming households much faster than homebuilders are creating new housing.
Additionally, according to the National Association of Home Builders (NAHB) in February 2022, 69% of US households could not afford a median-price newly built home in their area. With mortgage interest rates climbing to nearly double what they were in early 2022, there are likely more households “priced out” of newly built homes now.
Obviously, the same goes for existing homes now that average monthly mortgage payments on a $400,000 home are $800 more than they were in early 2022.
The gap between new home completions (approximately 810,000/year) and household formation (approximately 1.5M/year), according to NAHB, offers crystal clear evidence of the US housing shortage. Even if the rate of home completions doubled to 1.6M. the NAHB estimates it would take more than 20 years to close this existing gap.
Existing homeowner vacancy rate, down to just 0.9% in 2021, just emphasizes this disparity between housing supply and buyer demand. The NAHB concludes that the US will live in a “demand-rich and supply-starved” housing market over the next 10-plus years.
Purchase mortgage originations are going to prospective buyers who can afford their mortgages.
According to the Mortgage Bankers Association, over 70% of mortgage dollars are going to prospective homebuyers with credit scores of 760 and above. In pre-2008, less than 25% of prospective homebuyers had credit scores of 760.
2022 Is 2022, Not 2008
These three data sets will help you communicate concrete, specific, invaluable information to your clients.
Combine this information with your local market expertise and your personal approach to marketing and client services and you clients ought to be “good to go” with you.
Thanks to Inman.
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