After speaking with hundreds of past, current, and future clients over the past 3 weeks our team wanted to put together a list of the top questions being asked. Some of these questions we don’t have direct answers for but we do have lots of data from similar situations in the past.
Here are the top 5 questions we have been answering
- When is the economy going to recover?
- Are we going into a recession?
- Is this going to be like 2008?
- What about all those job losses?
- What should I do right now?
Q1- When is the economy going to recover?
In order for our economy to start moving forward again, we need to be able to go back to work. Our team is hoping this will be sooner rather than later. It is tough to sell homes in a market like this as the Real Estate industry is a relationship and face to face contact business. This pause button is definitely causing people that can wait to sell and buy homes to wait. As Realtors we are adapting and bringing in more technology to help with the process. Homes are selling virtually and deals are still being done but it is far from business as normal.
After looking at what all our major financial institutions are saying we should see a “V Type” recovery once the market opens up again. This “V Type” graph includes a sharp decline in our economic indicators as we have already seen in quarter 1 of 2020. But, once we hit a low in our upcoming Quarter 2 as suggested by JP Morgan, Morgan Stanley, and Goldman Sachs we should experience a sharp increase in all these markets.
Our current Real Estate market is not broken so when we are able to start working again it will be a quick transition.
Q2- Are we going into a recession?
Remember that a recession does not equal a housing crisis. Even if our economy starts to enter a slight recession from COVID 19 that should have no major impact on the housing market. According to both Prologic and Freddie Mac Home Price Index data collected from 1975 to 2018 we have only seen two drops in home prices from a recession. One during the Gulf War in 1991 and the other in 2008 caused by many different factors including the ability of obtaining a mortgage to be too easy, high appreciation because of a lack of inventory for the number of buyers able to obtain credit, home equity loans, and other factors that we will cover in the next section.
Q3- Is this going to be like 2008?
According to Mark Fleming, Chief Economist at First American “While housing led the recession in 2008 – 2009, this time it may be poised to bring us out of it.”. Most of us are on the same page and know the market in 2007 vs today is nothing alike. There were many differences and let’s look at a few of those using visuals:
Annual Home Price Appreciation
Home prices were increasing at a very high rate leading into the crash in 2007 compared to our appreciation values leading up to 2020. Notice that home values are appreciating but not at the exaggerated percentage they were in 2004 & 2005.
Buyers Market vs Sellers Market
Most of our local communities are in what is known as a sellers market with a limited amount of inventory and a lot of demand (buyers) in the market. To be a perfect market we would need a 6 month supply of homes available on the market. We were sitting at about 3 months of inventory heading into the shutdown. With low interest rates and buyers still wanting to buy this will still be the situation in quarter 2.
The graph below shows our current inventory sitting at about 3 months and in 2007 we were sitting at about 8.2 months (buyers market). For more details on Buyer vs Seller check out this simple article from Moving.com. CLICK HERE
Mortgage Credit Credit Availability Index
Look at the graph below you can see how easy it was to obtain a home mortgage in 2005 – 2007 vs today. The industry is more regulated so it is harder today to get approved for a mortgage than it was previously. The higher the point on the graph the easier it is to get a loan. This was one of the biggest factors leading into the Great Recession. Watch the movie or read the book “The Big Short”.
Total Home Equity Cashed Out
Just look at what our country was doing with their equity in their homes leading up to 2008. Not only is this number drastically lower today but also about 53.8% of America has at least 50% equity in their homes. This alone is a huge difference.
Annual Home Appreciation from 2000 – 2002
Finally, the graphic below shows how the stock market and the Real Estate market have nothing in common. Look at the years from 2000 – 2002. The stock market was down 45% while the housing market kept on keeping on.
Q4- What about all those job losses?
Looking at the graphic below you can see that we have never had the number of job losses in the United States as we are experiencing today. This number is not up to date as of April 15 so this number is of course even larger now than it was on April 3 when this data was pulled. But it is important to look at who has filed for unemployment and why. Remember that most of these cases are forced and the majority of them come from our restaurant industry. As of April 3, 2020 according to the U.S. Bureau of Labor Statistics almost 60% of the unemployment report was food service and drinking “places” establishments. See the rest of the break down below.
It is also important to know that home sales and unemployment rate do not have a direct connection. See the final graphic in this section for the details.
Q5- What Should I do Right Now?
Our team has struggled with this exact question as we are working with one hand tied behind our backs as we are part of the shut down as most of us in the country are. Our solution has been to focus on our families, helping others including those heroes that are working still including our fire, police, and healthcare workers but also those that need our help. Families in the local community that need help we are here. We are also focusing on making sure that our systems and educational process are fine-tuned and up to date. This includes getting information on the market to our clients and the public.
Focus on yourself, your family, and your community as we are all in this together. Our country is resilient and we will get through this together.
Cheers to better days-
Written by Robert Yoder of HomeCraft Real Estate.