What's happening in the housing market ??????

“What's happening with the housing market?"

"Are we in a bubble?"

"This looks very similar to 2008”

These are some of the most common questions and comments I come across on a daily basis as a real estate professional.?

To start, this is a different situation than what we saw in 2008 and the years leading up to the last housing market crash. In 2008, banks and lenders were very lax on who they would lend money to. Unlike today, there were not many regulations and income verification processes like there are now.?

It was because of predatory lending habits and products like adjustable-rate mortgages (which had a balloon payment at the end of the term), as well as lenders approving mortgages to borrowers without income verification, that lead to mass foreclosures and people going under water. In 2008, there was an excess of homes for sale that were underwater that nobody wanted whereas today, there are not enough homes to meet demand and people are willing to pay more than market value.

What we are seeing in today’s market is a lack of inventory sufficient enough to meet today's demands. The pandemic is a large factor in what's going on not only with the housing market but with many industries and the economy in general.?

In order to stimulate a relatively stagnant economy, the Fed lowered interest rates to incentivize consumers to purchase homes. Rates remained extremely low for over a year which brought consumer interest and demand through the roof. Demand increased but supply remained low (and still does to this day comparatively) causing an imbalance of buyers and available houses for sale in markets across the US.?In addition to low rates, work from home models became?common during the pandemic which further-increased buyer interest in purchasing homes.?

Meanwhile, as a result of the pandemic, supply of new houses stagnated significantly. This was mostly caused by supply chain issues which drove the cost of materials such as lumber up significantly. With supply chain issues comes product delays and increased material costs which puts strain on developers. On top of this, developers face challenges with finding skilled laborers, navigating zoning laws and attaining permits due to understaffed regulatory agencies,?as well as finding physical plots of land to develop.?

Historically, in Denver, a balanced market (meaning neither buyers nor sellers necessarily have an advantage)?would have been around 3 and 1/2 to 4 months of inventory or between 8,500 and 9,500 homes for sale at any given time. This means if no other homes hit the market, all homes listed for sale would sell in 3 and 1/2 to 4 months, which is known as the market's "absorption rate". Recently in Denver, we've been hovering around 1,200 homes for sale at any given time over the last couple months (February-March, '22). This is only .44 months of inventory - meaning if no other homes hit the market, all homes listed for sale would sell in around two weeks. Two weeks compared to 3 and 1/2 to 4 months of homes...

So what does it all mean?

The Bad News: The imbalance of homes available for sale compared to the pent up demand and buyer pool has driven prices up significantly. So long as demand stays high and available inventory remains low, there will be fierce competition for houses in Denver and many markets across the country.

The Good News: With rates gradually increasing, buyer demand will begin to subside and ridiculous bidding wars should calm down. As the world continues to fight back against Covid-19 and as companies begin to reopen their doors, the balance of supply vs demand should be more evenly-weighed.?

Takeaways For a Buyer: Today's market is still very competitive. Those who have bought recently were able to secure a home with a lower interest rate and monthly payment though they likely faced severe competition and may have slightly over-paid. Those who will be buying in the near future will secure a home for a slightly higher rate (and monthly payment) but will face less competition and bidding wars than we’ve seen in previous months.?

All in all, the good news for buyers getting into the market is: demand for homes is not supposed to slow down any time soon. According to many industry experts, supply for homes will remain low for several years to come which will continue to yield favorable appreciation for homeowners.

Takeaways For a Seller: Today’s market conditions still prove to be favorable for anyone looking to sell. Inventory still remains low and despite rising interest rates, buyer demand is expected to remain high for the foreseeable future.

If you have thought about selling, sooner rather than later is your best bet, however, careful planning is advised for your next move.?

Kenyon Otero?- Broker - BeOne Team at Compass?

[email protected]