Dated: September 16 2022
by: Danielle Webster
The Housing Market is Not In a Bubble or About to Crash: Hear me out
The number one question real estate agents, lenders, builders, really anyone paying attention is "Do you think the housing market is going to crash or are we in a bubble"? Nobody wants a repeat of 2008 when it took almost nine years for the housing market to recover. I realize it is much better for news and publications to promote doom and gloom. Why, because it sells, the news is to entertain and receive higher ratings and views, not actually educate on what's genuinely occurring. Some of what we are hearing does have some truth to it, but it does not tell the entire story. There are four indicators that will help predict if there is a bubble, if it's about to burst, or even worse a housing market crash. These indicators may vary depending on where you are located, but let's dive into what they are so you can make up your own mind about what is happening in your local market.
The first key indicator on the list is employment or lack there of. Here in Huntsville Alabama in August of 2021 the state's average for unemployment was 3.3%. This year, August 2022 we have significantly lowered that to a 2.4% unemployment rate, a record low, according to the Alabama Department of Labor. All of Alabama's 67 counties saw their unemployment rates decline over the year, also all of the counties maintained or lowered month over month. So in general Alabama has a strong job market with an unemployment rate that is well below the national average. More than four Billion, yes a capital B has been committed to growth projects in the Huntsville tech sector such as Blue Orgin, Facebook, and Google. Thats not counting our manufacturing jobs that are on the rise from places like Mazda Toyota, Kohler, and BASF. North Alabama, especially the Huntsville area, can cross this particular indicator off the list for now, we seem to be in great shape as far as well paying jobs and growth in employment opportunities. How does your area look in job growth and unemployment?
The second indicator is lending standards in regard to housing. Since the debacle of 2008 when anyone and everyone was able to qualify for a mortgage even if they had no job, savings, or a way to pay back the loan, mortgage lenders have increased their standards and it is much harder to secure financing. The Mortgage Credit Availability Index shows how different lending is today, you must qualify, and have the ability to repay. The below chart has information from the source MBA it shows the historical data for the MCAI index and you can see for yourself the obvious difference. No matter where you are located, lending practices today are universally better than back in the 2000s.
The third indicator might be a bit obvious, but keep an eye on foreclosures in your area. They are a great way to measure your local markets health. Luckily, due to the previous indicators, having a good job market along with responsible lending practices produce better qualified buyers and in turn less foreclosures. Only a small percentage .4% of homeowners nationally were facing foreclosure the 2nd quarter of 2022, of those 91% had at least some equity built up in their home according to ATTOM Data Solutions. In Huntsville the percentage is even smaller at .11% or 1 in every 925 homeowners. Mortgage servicer are generally O.K. with about a 1% default rate, we are well below that. Since the borrowers are better qualified and have more equity in the home this puts homeowners who are struggling in this market in a very different situation than in 2008. Generally, in this scenario you might not make as much money as you would have six months ago but most people do not owe more than the home is worth like in the last recession. This next chart shows the foreclosure activity by year from ATTOM Data Solutions. Are foreclosures high in your area?
The fourth indicator to watch is inventory, the #1 factor in most economies, supply and demand. Huntsville's inventory has increased 75% from this same time last year to a whopping 2.1 months supply according to InfoSparks by Showing-time. Historically low inventory due to the pandemic is what created this insanely unpredictable market. The frenzy of no homes or inventory is finally settling, the amount of homes going on the market in Huntsville has consistently increased four months in a row according to the Valley MLS. It might not be as quick as what buyers would like, but it's definitely heading to a more reasonable and recognizable market. The inventory increase nationally has gained significant ground and the data is shown in this chart where the information was gathered from KCM. Are more homes being listed in your town than earlier this year?
As far as home prices, I see them slowing in appreciation, but not expecting any kind of significant depreciation in the foreseeable future. Remember, if you only listen to the news, and don't educate yourself, you only hear about how annual home price growth dropped nearly two percentage points. The greatest single month slow down on record since the 1970s according to Black Night latest monthly mortgage monitor. That sounds bad right? Black Knight continued to say that while the slowdown is indeed record breaking it would have to continue for 6 months at that same record breaking pace to drive appreciation back down to a 5% rate which is still more in line with long run averages.
The bottom line is the insane increase in prices, all the competition that ended in highly contentious bidding wars, historicaly low inventory, and throw in a pandemic for giggles, could not continue indefinetly. It was necessary to unplug and do a 15 second reboot to create a much needed correction. It is now more important than ever for real estate agents like myself to adapt, adjust, and interpret what the entire picture and story is illustrating. We will have to be more creative and design better strategies to address and educate our clients so they are able to achieve their real estate goals no matter what the market and economy deliver.
Sources:
Valley MLS
Black Night
SPCase-Shiller
InfoSparks
Alabama Dept of Labor
ATTOM Data Solutions
MBA
KCM
