While many of us are rightfully concerned about our personal health and safety and that of our families, we are also concerned about our financial health as well. Most reading this has lived through the financial and housing crisis of 2008 and are concerned about a repeat of that crisis. I am not an economist, and these are unprecedented times, but I have dug up some pretty encouraging news that I'd like to share with you about why this time isn't like the last time and let history will give us hope.
Economically speaking, since the current situation resembles the stock market correction in the early 2000s, let’s review what happened to home values during that time. The S&P dropped 45% between September 2000 and October 2002. Home prices, on the other hand, appreciated nicely at the same time. That stock market correction proved not to have any negative impact on home values. See chart below and Keeping Current Matters: Why the Stock Market Correction Probably Won't Have Anything to Do With Home Values.
What does this Coronacrisis mean for the economy and the value of your home? An economic recession is defined as two-quarters of negative economic decline. Most economists agree that we are certainly headed for that.
...But a recession doesn't have to mean a housing crisis!
History informs our understanding and most of our frame of reference relates to the last housing crisis of 2008 and the fallout and crawl to recovery.
How is this crisis different from 2008? According to the experts, our current market has no similarities with the 2008 housing crisis. Yes, devastatingly, people will lose jobs and unforeseen things will happen. However, the mortgage industry has indicated a willingness to help in ways they didn't before by forbearing payments for those impacted (See website for more info on forbearance options). Also, the last housing crisis created the economic crash based on a flawed mortgage and banking system. We have a more stable system today. (USA Today: Here’s How the Coronavirus Crisis is different than 2008)
Also unique to this current event, an unprecedented bipartisan bill just signed into law a $2 trillion economic stimulus package — the largest economic rescue measure in U.S. history — to help businesses, employees and gig workers negatively impacted by the COVID-19 crisis. Check out Marketplace: What the $2 trillion economic stimulus package will mean for you. And student loans are able to be deferred as well (StudentAid.gov: Coronavirus and Forbearance Info for Students, Borrowers, and ParentsCoronavirus and Forbearance Info for Students, Borrowers, and Parents)
Let history speak for itself. Historically speaking, through 3 of the last 5 recessions, housing markets on average have appreciated by 5.4%. (Keeping Current Matters: Here’s 5 Simple Graphs Proving This Isn’t Like the Last Time)
Supply and demand at work in Tacoma and Pierce Counties. All of these graphs and data take a more nationwide approach to data. Tacoma and surrounding areas have been the fastest growing housing market for over a year. Supply and demand have been on the side of the sellers for years. Historic inventory lows show February 2020 Housing inventory in Pierce County is yet -32% lower than it was last year this same time and Thurston is nearly -30% lower (see charts below).
There are far more buyers than there are homes for sale. That is because of many different factors: Modern healthcare is extending the life of the biggest cohort generation along with the second-largest generation cohort entering the home buying market: the Millennials. These factors are influential, taken together with the influx of people from other states, tech job creation and Seattlites moving south in order to find more affordable housing (and a myriad of other factors). This is all well and positive for home sellers, but provides challenges for home buyers. In Pierce County, there are only 1.8 months worth of inventory left for all buyers looking for homes and only 1.2 months in Thurston County. Many buyers have been locked out of the market due to competitive bidding that drives the price up beyond their reach.
InfoSparks Graph of Pierce County Homes for Sale for the last 3 years (-32% decline in homes for sale + 1.8 months of inventory - as of two days ago).
InfoSparks Graph of Thurston County Homes for Sale for the last 3 years (-29.7% decline in homes for sale + 1.2 months of inventory).
Supply and demand at work in Tacoma and Pierce Counties.
It means that if things shift where we have more inventory, that would provide a more normalized market. A normal stable market has been historically defined as 6 months' worth of inventory. As you can see, it would take a large amount of inventory to become available in order to change the supply and demand dynamic at play in Pierce and Thurston counties.
Interest rates still low. Another positive data point is that interest rates are still historically low, (even with the volatility), and that provides an extra incentive for buyers to buy vs. rent. Many renters are paying rents on par with mortgage payments so it makes more sense for them to buy, plus there is also a shortage of rentals. Many landlords have sold their rentals to take advantage of the seller's market. So, finding rentals is as difficult as finding a buying a house. This rapid sell-off of rentals creates renter instability, which drives people to buy so they can have greater control over their shelter.
Stronger housing market today. In 2008, many homeowners were upside down on their mortgages because they took all the equity out of their homes. Averages show that homeowners have more equity in their homes now than they did during the housing crisis (Business Insider: Fewer Americans Are Borrowing Against Homes). Leading up to the last financial crisis, as you may remember, many people used their homes as “ATMs” -- and the banks let them. A lot of loose lending practices have tightened up to protect equity from being used like ATMs. So, we have a much stronger housing market today than we did before. People are less likely to walk away from their homes with large amounts of equity in their home.
Time heals most wounds. Let’s say the worst happens and you do lose equity in your home, it’s only an on-paper loss, like stocks, until you need to sell. If your time horizon for selling is short, that might provide a problem if you don’t have much equity built up. But that’s true whenever you buy -- as you build equity over time. If you have a longer time horizon for selling, then time always has a way of correcting these losses.
More on the economy and housing by economists...
- Here’s what some economists are saying: https://bit.ly/2Jin5eq
- Listen to Interview “This Too Shall Pass: https://www.thebrianbuffinishow.com/this-too-shall-pass-an-interview-with-dr-lawrence-yun/ - Real Estate Coach, Brian Buffini Interviews with Dr. Lawrence Yun Chief Economist and Senior Vice President of Research for the National Association of Realtors
We will get through this... we will be better for what doesn't take us down, will make us stronger.
Stay safe, stay well.
RE/MAX Northwest Realtors
Let's connect on Facebook
Five Star Zillow Agent
2017-2020 RE/MAX Top Producer
Top 1% Producer of Pierce & Thurston Counties
2019 - RE/MAX Hall of Fame & Platinum Club
2018 - RE/MAX Platinum Club
4801 S. 19th St, Suite 200
Tacoma, WA 98405