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  • Writer's pictureSarah Gardiner

My Not-So-Crystal Ball

I want to note that I am not an economist, I love reading the thoughts of economists. I also love history, I feel there is so much to learn from it, including our economic history, so when clients ask what I see in our future, I look for patterns in our past.

A lot of people fear a 2008 housing crash repeat, and understandably so as it's the most recent example we have of a blistering market, and where did it lead? To a massive crash. However, indicators show that the conditions were different. At that time dubious mortgages were rampant, and many unqualified buyers swamped the market. Demand sky-rocketed and supply was just not there. So of course, builders build moving on this lucrative market. So when the reality check hit and demand spiraled down, foreclosures rocketed up and now we had more homes than there were qualified buyers. Builders stopped building.

An excellent example is our own Horizon West. All these villages and communities started being built in 1997 but made a screeching halt in 2008 and didn't really pick up again at full swing until the last few years. However, our current scorching market isn't because of wild west lending.

In the first quarter of 2022, a Fannie Mae report reported that the average credit score of a FIRST time homebuyer was 746, and the average score of all homebuyers of 756. That's incredible. So this market isn't being flooded by unqualified buyers. Instead, we have Millenials finally able to overcome an earlier recession, and the pandemic to purchase homes but they are not the only ones. We also have a lot more movement in the investor community. You might have seen some of these articles about investors purchasing whole communities, with cash...

Real Estate Fund Acquires Entire Community Of 146 Single-Family Homes In Jacksonville, FL

Goldman Sachs-backed firms buy entire Florida community for $45 million

Investors have always existed but this is still something unique. A bigger and new hunger for single-family housing. According to a report published in June by the Harvard Joint Center for Housing Studies, a record 28% of single-family homes were purchased by investors in the first quarter of 2022.

So this scorching market comes from legitimate and high demand. Now with rates going up there are many who hope things will cool down. But what does that look like? Will it happen? This is where the crystal ball gets murky.

While this might not be a 2008 it could be a repeat of the 1970s. Below is a chart showing the inflation rate and home prices from 1973 to 1982.

The last time the government went crazy printing money (inflation) was in the 70s. Home values still went up every. single. year. Even when mortgage interest rates were 16-18%. Even when we had two back-to-back recessions in the early 80s. Prices continued to rise. Also, let me define prices a little bit, List prices are what sellers wish they could get, and those prices will start coming down-but home values-their actual worth and actual selling prices-aren't-instead they are still going slowly up.

Meanwhile, a lot of economists are forecasting a recession, while some say we are already in one, and others are more hopeful. A recession slows down the "economic activity" across the economy but guess what...

“If we look back at the last six recessions, mortgage rates ended up coming down — because that is exactly what happens to mortgage rates during a recession — and home values held the line or slightly increased in value. As an asset class, real estate historically has been very protected and performed strongly during recessionary and inflationary periods.”

-- Mortgage Expert Arjun Dhingra

Check out the podcast episode "What a Recession means for Housing Prices and the Housing Market": https://themortgagereports.com/92940/recession-housing-market-2022-podcast

For even more information and for the source of this fantastic graph, check out "Recession, Interest Rates, and Real Estate" article on the mortgage specialists page.

So I don't have a crystal ball, and there are still so many other factors that could make this a truly fascinating ride (the war in Ukraine, for example) but as of right now I'd say, yes, it's still worth it to purchase a home. Is it worth it to sell? Yes, inventory is still low and demand is high.

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