August 8, 2022 | Without a doubt, our white hot real estate market of the last two years is (finally) losing steam. Now, some are speculating an impending market crash. So, let's take a few minutes to work through a few numbers together.
2008 — Nationwide, during the worst housing decline in history, our nation was overbuilt and over-borrowed. Loan-to-value ratio hit 41% with a high percentage of adjustable rate mortgages in play. As a result, a jaw-dropping 11 MONTHS of inventory became available and housing values dropped 25%. As we know now, thankfully the market recovered just a few years later, but still, ouch.
2022 — Nationally there is 3 MONTHS of inventory. Mortgages have an average 30% loan-to-value ratio. What's more, seventy-five percent are on an affordable fixed rates at or below a 4%. Amazingly, nearly 40% of homes today are owned outright.
BIG DIFF — Unlike 2008, today's home real estate market is more owned than borrowed. So, while everyone understandably feels the stress of a hyper-charged real estate market, the vast majority of today's homeowners remain well positioned and can simply hold rather than being forced to sell.
POP QUIZ! 👩🏫 To anyone predicting a catastrophic housing crash in the months ahead, a simple question: Just where exactly would EIGHT ADDITIONAL MONTHS of inventory come from? 🤔
The value of real estate is determined by supply and demand; neither of which appear ready to change radically anytime soon, especially across the greater Denver Metro area.
Sure, it's basic human nature to notice more frequent reductions in asking prices, but they are just one (and the weakest) factor in a complex picture where it is critical to understand fundamentals.
The true market value of any home is, always has been, always will be, and can only be determined at CLOSING by what a buyer is willing to pay. As such, a reduction in a seller's list price (AKA "wish price") should not be misunderstood as a loss in home value.
THE TAKEWAY — All indications point to our moving into a healthier market where home values continue to rise just at a more sustainable pace, and prices moderate. To me, that's a forecast not to be afraid of — but one to celebrate and to find opportunities within.
Thinking about buying this year? Good. Rent has an effective interest rate of 100%. That's a steep cost that doesn't add up for most anyone, especially in the long-term. My advice? Think about what you need and where you want to be ... this time next year. :)
Then call me and let's start exploring opportunities together.