BREAKING NEWS: Real Estate is Fine
Much has happened over the past several years to make one wonder if and when the real estate market will suffer a collapse in line with that of 2008.
When the national economy suffers the challenges of multi-year pandemic quarantines, supply chain disruptions, labor shortages, and rising inflation, it seems logical home sale activity would end up in full retreat. The full light of day however reveals how the contemporary economy defies these expectations, to the detriment of some, and the benefit of others.
Though 14 years in the past, the effects of the 2008 great recession and real estate crash remain very present in the minds of many, particularly the younger generations who first watched the impact on their parents and neighbors, and now in their home-buying years. A major difference though between now and then was what precipitated the collapse: systemic fraud in the mortgage-backed securities market, which along with poorly regulated actors lead to an unprecedented volume of foreclosures. Home prices tumbled as a huge supply of homes flooded the market. In the years that followed, regulators have shored up their surveillance to halt unethical practices and prevent a recurrence.
It took a little over 10 years for the real estate market as a whole to regain the entirety of the value lost in the crash, during which time the supply of new homes built was significantly below the demand for housing based on normal population growth. Then came the pandemic, and since March of 2020 the concern over spreading the virus kept houses from entering the market, depressing inventory. Simultaneously the growing work-from-home populace found the opportunity to choose an ideal location in which to live, untethered from a daily commute. Alongside this trend was a chilling appeal for the close quarters of urban life, which combined with low interest rates to drive many renters unprivileged to work from home to seek affordable homes in the less congested portions of their urban areas. Supply remained limited compared to demand, and the market for affordable homes was further strained by the ascension of institutional investors building a rental portfolio. Much of the rapid appreciation in value came about because these investors were tendering cash offers well in excess of market value, banking on continued price increases and interim rent yields to offset the bold investment strategy. The result is unprecedented and unsustainable home value appreciation over the past 1.5 years. According to the National Association of Realtors, the median sale price of a home in 2019 was $274,600, rising 9.3% to $300,200 in 2020, followed by an even steeper increase of 17.7% to $353,400 in 2021.
Since a rising tide lifts all boats, the resulting appreciation could and did predictably benefit home sellers at all price points. The seller of the affordable home realized a windfall, giving them the strong position to secure their next home, and so on. For senior homeowners looking to sell but without the burden of finding a new home to purchase, the windfall is even more impactful, with the added benefit of short market times that limit exposure to the market and the need to do much to prepare for sale.