This week, I'm quite literally lifting (borrowing - with permission) much of the Perspective's copy from COMPASS' own master blogger, Leonard Steinberg. A daily writer and a superstar Real Estate Agent in the BIG Apple, Leonard is always full of good advice and information. This week was no exception and in a market that's transitioning rapidly, INFORMATION is currency.
Since many of the calls Sarah and I have taken recently have revolved around fear of the unknown, I thought this particular column was especially timely. Plus, Leonard is always a good read. Enjoy.
DID YOU KNOW?
Is this current housing re-balancing going to be the same as the 2007-10 housing crash?
That's VERY unlikely!
1. New lending regulations that resulted from the 2008 financial meltdown put today’s borrowers on far firmer footing. Of the 53.5 million first-lien home mortgages in the USA today, the average borrower's FICO credit score is a record high of 751. It was 699 in 2010 - two years after the financial sector’s meltdown. Lenders have been much stricter about lending, much of that reflected in credit quality.
2. Today’s homeowners have record amounts of home equity. Tappable equity hit a record high of $11 trillion collectively this year - a 34% increase from 2021.
3. Mortgage debt in the US is now less than 43% of current home values, the lowest on record. Negative equity is virtually nonexistent. Twenty-five percent of borrowers were underwater in 2011. Now just 2.5% of borrowers have less than 10% equity in their homes.
4. There are currently 2.5 million adjustable-rate mortgages (ARMs) outstanding today . . . about 8% of active mortgages, the lowest volume on record. In 2007, just before the housing market crash, there were 13.1 million ARMs, representing 36% of all mortgages. More than 80% of today’s ARM originations also operate under a fixed rate for the first 7-10 years.
5. While 1.4 million ARMs are currently facing higher rate resets - about 10 million ARMs were facing higher resets in 2007.
6. Mortgage delinquencies are now at a record low, with just under 3% of mortgages past due. (CNBC)
(Thank you, Leonard; here's where I jump in . . . )
And let's not forget that the most important influence on housing prices in a free-market economy is SUPPLY & DEMAND; not interest rates! People still bought houses when interest rates were 16%. For better or for worse, as a nation, we're still woefully short of available housing stock to meet current demand (5 million units short, in fact), which is undeniably true in our neck of the woods as well, where beautiful weather, a strong economy, and stunning scenery still attract those in pursuit of California sunshine and prosperity.
That being said, interest rates have gone up more than 70% since the beginning of the year and are expected to rise once again. Active listings have gone up by 30% (meaning that houses are taking longer to sell), and not surprisingly, price reductions are also back in the picture (they've been practically nonexistent the last several years). More telling, pending sales are down 24% in all housing sectors. (The affluent tend to be more heavily invested in the stock market, so they too, are feeling the pain. There's no escaping this correction regardless of one's socio-economic level.)
Unfortunately, these conditions (along with many others) have led to a decrease in consumer confidence, which is at its lowest point since 2011. In other words, bad news is a self-fulling prophecy. Consequently, if you are bringing a house to market, the journey is likely to take longer, and the property will likely sell for less than it would have last year. (Timing is everything.) In short, it's no longer going to be a sprint to the finish. (Take a breath; we've been here before.)
Will high-end communities that saw more robust housing increases (Piedmont, Berkeley, Burlingame Hillsborough, Ross, Kentfield, Palo Alto, Woodside, etc., . . . ) experience a greater correction?
Possibly, but it's too soon to tell. As housing prices soared as much as 33% in the last two years (an inflation rate that was unsustainable by any measure), a contraction was bound to happen. In truth, it was long overdue. Even with an anticipated contraction in 2022, most Homeowners are still coming out well ahead of the game - even those who have only owned for a short while. In other words, adjust your expectations accordingly.
Bear in mind that good homes sell in ANY market, so keep your house in good order, make sure your improvements appeal to the masses (open concept kitchens with adjoining family rooms, usable backyards, bonus spaces), and understand that a home's value is far more than a balance sheet; it's where you provide safety and security for your loved ones. It's your home.
If you are NOT in the market, sit back, relax, and enjoy the view. The current news of shifting sands when it comes to home sales should be fairly irrelevant (although filling up the gas tank is still gonna sting.)
Finally, whether a move is imminent or much further down the road, let's remember that the value of any house is only important when you go to sell. If you missed the crest (and that IS definitely behind us), please note that markets are cyclical, but they are also relative. If by virtue of timing, you see less on the sale of your home, chances are you are paying less for its replacement property as well.
Irrespective of the marketplace, life has a way of moving forward: babies are born, kids graduate, marriages take place, loved ones pass on, and so it goes . . . the human species is in a constant state of flux. Perhaps we're all nomads at heart.
Having walked through the previous correction after the financial meltdown in 2008, I can assure you that prices didn't hold at 2008 lows, within a few years they came roaring back, stronger than before and then kept climbing. (This is where I remind you that Real Estate is a LONG-TERM investment.) Given that none of us controls the market forces, let's focus on what we can control: presentation, pricing, and promotion.
How can we help you?
Julie Gardner, has been writing The Perspective for 18 years and has published more than 670 essays on life and real estate.