Getting Off The Highway Without a Crash

Posted by Cindy Allen - Buyer's Agent on Tuesday, February 26th, 2019 at 10:39am

Keller TX real estate market slowing

Home prices are softening across the DFW metroplex and I've heard concern that we may be headed toward the next housing crash.  That's a scary thought.  Perhaps it's made worse because most of us remember it.  But that's not where we are and I want to share an example with you to explain. 

Think back to your last long road trip.  You'd been on the highway going 75 mph (or more) and then a few miles from home you make your way out of the fast lane and on to the two lane service road with a speed limit of 45.  Do you remember that feeling that you were just crawling along.  You may even use that same service road every day and it never felt that slow.  That's exactly where we are in the housing market.  We've moved off the highway and gotten back on the daily driving roads. 

This is what a normal market looks like.  It's a high school economics lesson on supply and demand.   More inventory has come on the market of late,  and the inventory of homes for sale today more closely matches the demand in the market.  Buyers don't need to get into bidding wars because there is more inventory, so there is less upward pressure on prices.  The country may be headed for a recession but there is nothing indicating that the housing market will crash. 

Let's review why the bubble market of twelve years ago is much different than today's market.   First of all home prices depreciated dramatically between about 2008 and 2011.  Today's prices are not depreciating.  In fact, prices are still seeing upward movement.  Appreciation has just decelerated to a normal, sustainable rate. 

Secondly, lenders have been easing credit standards, but they're still not as lax as they were when they helped create the housing bubble. The Urban Institute’s Housing Finance Policy Center's January Housing Credit Availability Index states there is significant space to expand credit.  Even at double the current default risk, it's still well below pre-crisis standards of 12.5% from 2001-2003 for the whole mortgage market. 

The final reason this return to normal is not the same as the 2008-2011 housing bust is the foreclosure rates.  Through the bust, foreclosures and short sales accounted for as much as 35% of national home sales.  The Mortgage Bankers’ Association reports “The percentage of loans in the foreclosure process at the end of the fourth quarter (2018) was 0.95 percent…This was the lowest foreclosure inventory rate since the first quarter of 1996.”

Bottom Line

Looking at lending practices,  appreciation and depreciation, plus rates of foreclosure to compare today's market to the last housing crash, it's apparent the two are completely different.  Home prices are appreciating closer to historical norms as we continue to head towards a more ‘normal’ market. This is great news! Homeowners looking to sell their home will have buyers, as more buyers will be able to afford them! -Cindy


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