Top 4 Myths About the State of the 2019 Real Estate Market

Posted in Housing Market

Today’s Myths About The Housing Market

With the memory of the 2008 recession and subsequent real estate market crash fresh in the collective memory of the American people, it can be easy to feel skeptical about the current housing market. The market is strong now, but the market was strong back then too- and it all turned out to be the calm before the economic storm. Before succumbing to the mounting paranoia toward the current housing market, it is important to consider a few key differences between the market in the 2000’s versus the market now.

Another Housing Market Crash?

There are several myths circulating regarding the state of the 2019 housing market. Some are speculating that the market is heading for another housing bubble akin to the 2008 recession.

A housing bubble occurs when home prices reach considerable highs only to drastically crash, devastating the housing market and home values.

The robust state of the 2019 housing market has led to speculation that another crash period is inevitable. While this may seem to follow the typical formula for past housing bubbles, there are features of the modern housing market that make it more resilient than it seems at first glance. For instance, inflation rates can account for a portion of the surge in home prices. While prices have certainly appreciated at a steady rate, the change is not quite so drastic as it initially appears. According to CoreLogic, “The inflation-adjusted U.S. median sale price in June 2006 was $247,110 (or $199,899 in 2006 dollars), compared with $213,400 in March 2018.” Home prices, then, are not nearly as inflated as in 2008, setting the foundation for a stable market.

Similarly, research conducted by the Urban Institute’s Housing Finance Policy Center indicates that loan providers are steering clear of the dangerous speculative loan policies which led to the crisis. Loan providers in the current market hold much stricter lending standards, leading to less defaulted loans and less losses across the board, further contributing to the stability of the market. Finally, foreclosure rates are at a fraction of the numbers from the early days of the recession. This is an important indicator, since high foreclosure rates have a ripple effect on the housing market. Homes in foreclosure are sold at an extremely discounted price, anywhere from 25% to 50% less than their normal value. A saturation of these cheap houses on the market forces sellers to drive down prices in response so that they may compete with these homes.

Rising Interest Rates?

And while rising interest rates and tariffs may not bode well for the overall state of the economy, they do not mean that the housing market will also suffer. Many believe that an economic crash necessarily generates a housing market crash, but this is not always, nor even often, the case. In fact, according to a study by ATTOM Data Solutions, a real estate data provider that analyzed home value figures from five recessions in the U.S. since 1980, home prices only dropped two times. Among those two years, 1990 and 2008, only 2008 saw a significant decline in prices, with 1990 dropping by less than a percentage point. The other years examined actually saw house prices increase despite the looming recession. This is due to the fact that housing is not a luxury expense but rather a basic human necessity. Regardless of the state of the economy, people need a place to live, and they will save money to attain it.

Housing Affordability Crisis On The Horizon?

Lastly, many worry that there is a housing affordability crisis on the horizon. While we have already established that many of these discrepancies can be accounted for by rising inflation rates rather than rising home costs, there are other factors which should assuage any doubts about an affordability crisis. Despite the fact that interest rates have risen slightly over the past few years, the market is generally primed for prospective home buyers to invest. A recent study by Zillow indicates that the percentage of median income necessary to purchase a home is currently at 17.1% on average, far lower than the 2006 figure of 25.4%. Hence, while monthly payments might make up a slightly higher number due to interest rates, the overall cost is drastically reduced, making housing affordable for the vast majority of Americans.

You Have Options.

With these factors in mind it is important to consider a number of options which can make home buying even more accessible for interested buyers. There are a number of underutilized assistance programs that enable potential owners to buy homes. While we focus on and highly recommend many specialized nurse loan programs, there are comparable programs available for all buyers looking to invest in real estate. With all the misinformation circulating around housing and affordability, the most important step that a buyer can take is to educate themselves on the reality of the housing market and make an informed investment instead of being needlessly discouraged by housing myths.

References:

https://www.curbed.com/2019/1/10/18139601/recession-impact-housing-market-interest-rates

https://www.keepingcurrentmatters.com/2018/07/26/4-reasons-why-we-are-not-heading-toward-another-housing-bubble/

https://www.keepingcurrentmatters.com/2018/08/29/top-3-myths-about-todays-real-estate-market/

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