If you're like me and you enjoy torturing yourself with obsessively watching the news, you may be panicking about what's going to happen with the real estate market. Are we in a bubble? Is there going to be a crash? What about a recession? The answers to the questions, I don't have. But, according to bankrate.com's Jeff Ostrowski, we don't need to panic. According to Jeff (who, unlike me, interviewed housing economists and other experts), here are five reasons the real estate market is not likely to crash.
Inventories are still low. If you're cool and you religiously read my monthly real estate stats posts, you know this is as true here in Tucson as anywhere! This last month we had 2,614 single family homes for sale, while in January of 2010 (the earliest month of stats I can access), we had 7,374 homes for sale. If you made it to your first day of Econ 101, you know that low supply will increase prices.
Builders can't keep up with demand. During the pandemic, builders faced plenty of problems (just like the rest of us right?). There were supply chain issues, employees getting sick and not being able to work, people unable to get childcare, etc. All of this happened at a time when supply of new homes was already lagging. We need more homes in Tucson and across the US and they just take time to build. Again, with the supply and demand. See bullet #1.
A shift in the demographic of homebuyers is creating more demand for housing. Many millennials who have put of purchasing a home for various reasons are now entering the housing market. According to research by bankrate.com as of 2021, people under the age of 35 owned homes at a rate of only 38%. When looking at the 35-44 year old age group that rate jumps to 61%. A large amount of people are purchasing their first home during this time, and many millennials are entering this age group now. So the prediction is that overall demand for homes will increase while supply will remain low.
It's not easy to get a mortgage. Back in 2006 (I was in college buying textbooks, not houses ok?) but I've heard you only needed a pulse to buy a house. Maybe not even. If you've bought a home at any time since the housing crash, you'll know it's no walk in the park. Underwriters look closely at your ability to repay the loan and afford other expenses you may have (car payment, student loans, child support, etc). Because of this, people are not able to purchase homes they can't afford. Not only that, most of today's homeowners have fixed rate mortgages, so they at least know how to budget for the long term.
We don't have an explosion of foreclosures. The job market is strong, people are in homes that they can afford for the long term, on average people have more savings now than they did during the housing crash, and, most importantly, people have equity. If a homeowner loses their job, they will most likely be able to sell their home for a profit rather than have to give it up to the bank.
Do I think right now is a good time to buy? Yes. I think whenever you're ready is a good time to buy. In the long term (over a lifetime) you will build wealth by owning real estate and the sooner you can get started the better. If you're at the right place in your life and feel ready, then take the leap! Are rates high? They are higher than they were but they're lower than they were before that. If you buy a home when you're youngish, then over a lifetime you will build wealth for yourself. It's an investment and I think it's the best one there is!