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8 Reasons we won’t have housing inventory Armageddon any time soon

Are we on the all-new crazy train, destined to crash off the cliff in a pile of short sales and foreclosures? Are distressed sales headed to your market? Is the bubble bursting?

Do you feel confused and stressed yet? Us too. So let’s drill down on what’s actually happening, what it means, and what you should do.

Inventory is rising. The headlines say that the influx of active listings will drive prices down, reduce the velocity of sales and, consequently, wreck the market. This is indeed a logical argument since it was a major factor driving the housing crash of 2008-2009. Too much supply and not enough demand turned the tables from boom to bust back then.

It’s true that inventory has increased from an all-time low of 900,000 active listings in February 2022, up to 1.2 million listings currently. That’s an increase of 35.6% so far this year.

What does that really mean? Consider the fact that active listings peaked at 3.9 million in 2006. We have 2.6 million fewer than that peak. This time is not just like last time. It’s very unlikely that we will all wake up to a sudden increase of 2.6 million listings.

Why? Here are 8 reasons you won’t have inventory-armageddon any time soon:

Builders have slowed their production, and already taken drastic measures to sell off existing inventory. The bottom line, they won’t be flooding the market with new construction.

Inventory increased last time largely due to factors that are not present in today’s market Adjustable rate mortgages caused homeowners to no longer afford payments and not be able to refinance out of that situation. Just under 10% of existing mortgages are adjustable, and more than 50% of homeowners don’t even have a mortgage at all. In 2008, 80% of mortgage loans were adjustable. Some 50% of homeowners who have mortgages enjoy more than 50% equity.

Unemployment peaked in October 2009 at 10%. If you didn’t have a job, you weren’t going to be making your payments. The current unemployment rate in the U.S. is 3.5%. This is the lowest figure in 50 years. The number of unemployed persons declined by 261,000 to 5.75 million in September, while the number of employed increased by 204 thousand to 158.9 million.

In the Great Recession, homeowners owed more than homes were worth, with no equity, and more likely, negative equityBuilders had overbuilt oceans of unsold homes, condo high rises, and subdivisions.

You could rent a home in your same neighborhood for a smaller monthly payment than you were paying on your mortgage. In most areas of the country, you can’t do that now.

The whole world has already refinanced their mortgages down to 3% or less in most cases, with 30-year fixed terms. If you don’t have to move and pay 7% or more, then why would you?

Thanks largely to COVID-19, many would-be sellers turned their homes into vacation rentals. Others may keep their homes and turn them into traditional yearly rentals, versus listing and selling them as they would have back in the actual housing crash.

Finally, consider the fact that while inventory has risen dramatically this year, it’s still lower than the inventory levels of 2018, 2019, and 2020.

What should you do about this?

  • Don’t freak out. Higher inventory is not causing a housing crash.
  • Do reach out to all of your buyer prospects and let them know that there are a lot more homes to choose from, they probably won’t be in a bidding war, they actually get to have a home inspection and they won’t have to pony up for the appraisal gap. How many of those prospects will return to the market now that it’s a bit more favorable toward buyers?
  • What about interest rates? Who wants to buy a house when rates have gone up so quickly and drained the buying power? I’ll tell you who: cash buyers, relocating buyers, millennials and Generation Z buyers who are tired of paying inflated rental prices, investors, new construction buyers, and buyers who can still get a decent interest rate through buy downs or adjustable rate loans.

Knowledge equals confidence. Ignorance equals fear. Be the leader in this changing market and you’ll thrive, but you must be proactive. Each day, you are self-employed or self-unemployed, depending on how many people you find who need your help buying or selling real estate.

October 21, 2022, 9:56 am By Tim and Julie Harris