It’s hard not to notice that the historically hot housing market of the past two years is in a transition period. With interest rates rising, fewer people are buying houses, and prices are increasing at a slower pace. Understandably, when people hear this less than positive news, unhappy memories of the 2008 financial crisis suddenly resurface.
But don’t worry! The Placer Title team is here to calm your nerves.
A lot has changed since 2008. Instagram didn’t exist. The iPhone was less than a year old. And the real estate industry looked much different.
Back then, speculation ramped up demand for houses to an artificially high level. Today’s market is rooted in the fundamentals of supply and demand. Here’s what that means for you.
What happened in 2008?
Leading up to 2008, questionable and risky lending practices were more prominent. Lenders gladly offered a loan to someone with a low credit score, no money for a down payment, and even no income whatsoever. That meant many buyers would sign risky loans without fully understanding what they were getting into.
These practices altered the fundamentals of the housing boom. It was no longer about supply and demand; it was about speculation. People speculated that prices would keep increasing, and they wanted in on the action. When prices started to dip, this speculation-fueled demand vanished. However, there was still plenty of supply from a decade-long hot market. This caused prices to plummet and soon led to the global financial crisis.
What’s happened since 2008?
Rather than speculation, today’s housing market is rooted in the fundamentals of supply and demand. Whether you’re a Realtor, lender, buyer, or seller, you’ve probably noticed that housing prices have been rising due to a low supply of homes on the market. This is due to sheepish developers building fewer homes than demanded every year, causing housing prices to increase steadily until the pandemic hit in 2020. Then prices skyrocketed.
During the pandemic, people left big cities and headed for the suburbs, increasing the demand in these areas. But those already living in these areas had little incentive to move during such turmoil, so there weren’t many houses to choose from.
At the same time, the pandemic followed by supply chain issues made it difficult to build more houses. Supply couldn’t keep up with demand, so prices shot through the roof.
What’s happening now in 2022?
In March, the Federal Reserve raised interest rates for the first time since 2018 and signaled six more increases this year. Mortgage rates jumped from 3% to 5% in the month since, pricing some potential buyers out of the market.
Many are worried that this signals the beginning of the crash. To be sure, there are some concerning signals. Mortgage applications have dropped 40% from a year ago, and Lawrence Yun, the chief economist of the National Association of REALTORS®, projected a 10% decrease in home sales in 2022 during remarks in mid-April.
However, Yun also estimates that home prices will continue to rise by 5% this year. That’s because the fundamentals driving the market are still the same: supply still lags behind demand, so prices are still rising. No matter what ends up happening this year, our team is here to work together to do what it takes to continue to deliver for our customers.
While sellers may not see a dozen buyers offering above the asking price for a home anymore, the rate increase should bring an equilibrium to the market rather than a crash. After all, California is still a much-desired place to live. After two years of insane prices, calmer – but still active – days may lie ahead in the housing market.
Any changing times underscore why it’s essential to work with a title and escrow partner you can trust. With nearly 50 years of experience, we have the knowledge and skillset needed to help you navigate all your real estate title needs. Reach out to us today, and let’s discuss what you need for your next transaction.