Opinion: 2020 Housing Market Nothing Like the Crash of 2008
METAIRIE – “Uncertainty” and “fluid situation” are words being used copiously at this time to describe our global markets, the spread of coronavirus, the state of our local economy when we emerge from this pandemic and our mental state as we watch the news anxiously awaiting something to ground and reassure us that everything is going to be OK. These concerns have caused some to question their investment plans going forward and how this impacts the housing market.
While our futures are indeed uncertain and interest rates are volatile, there are deals to be made and the real estate industry seems like it will do fine both in the short-term and long-term. Meanwhile, Realtors are making the necessary adjustments and getting creative to support those in need of housing with increasing virtual services while maintaining proper social distancing.
One thing there seems to be no doubt over is that the economy is headed into a recession. While no one knows for sure how long this pandemic or the recession will last, experts agree that the sooner we get past this, the sooner our lives will return to normal. Goldman Sachs predicts a recovery in the second half of the year moving into 2021. While recession is a scary word, there is no need to panic. There are many indications this real estate market is nothing like the housing crash in 2008 for a few reasons: Mortgage qualification standards are much higher than they were back then, and housing prices are not soaring out of control as they were. We don’t have a surplus of homes like in 2008, we actually have a shortage. The supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and causes prices to depreciate. Anything less than a 3 month supply causes a shortage and will lead to more appreciation.
March 2020 MLS statistics for current housing inventory on the market in the Greater New Orleans region show only a 3.3 month supply (versus a 4 month supply in March of the previous year). This is considered a “neutral market’ meaning it’s currently neither a “buyer’s or seller’s market”. In 2007, there were far too many homes for sale nationwide which caused prices to tumble in most regions. Today, there’s a shortage of inventory which has been causing an acceleration in home values. In our local GNO region over the last 12 months, the average home sales price has increased 9.8% and the average price per livable square foot by 7.8%. The biggest concern in the short-term is how many potential homebuyers might decide to temporarily delay their purchases of a new home due to their concerns over the economy and job security.
Although these are valid concerns, they need to be objectively weighed out on the balance scale against these long-term potential benefits of buying now:
1. Locking in near-record-low mortgage interest rates.
2. Recognizing the law of supply and demand significantly influences pricing for any product or service, and there are estimates that population growth and more family formations over the last 10 years have created a new housing shortage of around 4.5 million units nationwide.
3. Understanding that since 1975, home values have increased at least 5% annually in almost every market in the country, and this 5%+ average appreciation per year also includes the temporary drop in values during the great recession of 2008-11.
4. Asking yourself if the trillions of dollars now being invested into the economy by the federal government to re-stimulate the economy (and to keep most businesses healthy enough to keep their employees on the payroll) will not result in a much faster recovery, especially since it was an extremely strong economy with record-low unemployment prior to this unique COVID19 pandemic which is already showing signs of having peaked in many parts of our nation.
The bottom line is that our local housing market is still healthy with new active listings appearing on the market and sales contracts coming in with plenty of opportunities to invest in real estate. While interest rates are still near historic lows, they are also volatile and changing by the hour. Our best tip for those looking to buy or refinance is to get your materials to a loan officer of a large lender right away and be willing to strike quickly for the best rate.
For now, the focus is on offering responsible and effective service to those in need by practicing social distancing while continuing to professionally market, show and close sales for our clients. Our Realtors are conducting virtual meetings and showing properties via “Google Hangouts” and pre-recorded video technology. Open houses have become “virtual” with public online Q&A sessions and closings have moved to paperless transactions, digi-signing, and drive-through signings.
So, with all of the uncertainty in the world, let’s move real estate fears closer to the bottom of the list. We will continue to adapt, change and grow together, and we will be here (at least virtually, or in-person with six-foot spacing) when you need us.
Glenn Gardner is the president and CEO of Gardner Realtors