If you're reading this, you're no stranger to the state of the real estate market in the Hudson Valley, and across the country right now. If you look at any statistic, it's setting records. Home prices? Record high. Available inventory? Record low. Number of homes selling above the asking price? Record high. Interest rates? Record low.
Almost every day, someone asks me where I see this market heading, if I think there's going to be a crash, or if things will get easier. So, this post will be about where I think the market is headed amongst all this chaos.
(Let me preface this by saying that these are only my opinions, I do not own a crystal ball, and if I say one thing and another happens, well, that's just life now isn't it?)
Let's start with the biggest question people have: Is the market going to crash?
No. It is not going to crash, there is no reason for the market to crash. If we take a look at even the most recent housing market crash that happened in 2008, much of the blame is put on lenders giving out loans to people who should have never been able to qualify for a loan in the first place. Someone who could have qualified for a subprime mortgage in 2008 would not be able to qualify in today's market with the same finances. If anything, lending became more strict at the start of the pandemic.
Inventory is the biggest factor to blame for home prices skyrocketing over the past year. It comes down to simple supply and demand. Due to Covid-19, people are looking to leave major populated cities in droves, and move to the suburbs for more space and privacy. However, there are not nearly enough homes on the market to satiate all of the people looking, and the cost of lumber has shot up, which is hindering new home construction which normally helps ease the supply problem.
A huge factor to keep in mind is that people have the money to buy homes at these prices, too. It's not like all of these homes are being bought with 0% down payment loans, (which don't really exist anymore except specific scenarios) but I'm finding lots of buyers are putting on average anywhere between 10-20% down on their loans. Cash buyers are also a huge portion of this market, ask anyone you know that is currently trying to buy a house and they'll tell you that they lost out on at least one house because of an all-cash offer that beat them out, cutting out the need for getting a mortgage and appraisal.
Speaking of appraisals, there's another safety mechanism built in to keep things from getting too out of hand. Before 2007, houses would almost always appraise for what they were being purchase for, and now, there are a good portion of houses not appraising for the full amount that someone is trying to buy it for. Then that difference will fall on the buyer or seller to make up or eat the gap, but banks are being much more restrictive on the amount they will actually loan out. They will not issue a loan for a penny more than what the market is saying the house is worth.
What about foreclosures, Tony? What about all those people who can't pay their mortgages because they lost their job? Well, hypothetical person asking me questions, I've got two things to say to you. First, foreclosure doesn't happen overnight. From the day that you start missing your mortgage payments to when the bank forecloses on your home and you don't own it anymore and sells it out from under you is about 4 to 5 years. Second, contrary to popular belief, banks don't want to foreclose on you if they can avoid it. A bank will make a whole lot more money off you if you pay them what you owe them, and foreclosing will typically net them a lot less money than they are owed. Foreclosure is a lose-lose situation in many ways for everyone involved. Covid regulations have also made it so that some homeowners can delay their mortgage payments. Between banks wanting to avoid foreclosure and the government passing legislation helping homeowners stay in their homes, we aren't going to be looking at a huge foreclosure wave crashing the market anytime soon.
So...what's going to happen?
My genuine opinion, is that things will stabilize in a few months to about a year from now back to a relatively normal level. Prices may not necessarily go down, but houses will probably sell closer to what they're listed for, or slightly under. While I just spoke about foreclosures from covid not happening, what I will say is that there is a growing supply of pre-covid foreclosures that were delayed because of legislation preventing foreclosures over the past year and a half. That legislation will come to an end soon, and all of the pent up supply of foreclosures that existed before the pandemic will hit and saturate the market.
I also believe that with the pandemic starting to be under control and the weather being warmer, that more people who were tentative about selling will now be open to the idea of selling their home and cashing in on the seller's market. It will not be all at once, but gradually over the coming months more and more people will list, helping to ease the current levels of demand.
Remember, housing market crashes happen when the money isn't there, or when extreme measures are put into effect. For example, if the Federal Reserve decided to increase interest rates to 10% overnight, then yes, that would be pretty damaging to the housing economy. But they're not going to do that, and the current buyers in the market are in a strong financial position to actually be able to afford the homes they are buying.
That's my opinion. I could be wrong on all of this, but I just don't see a hard market crash happening anytime soon. So, if you're a buyer out there overwhelmed with this market, take a deep breath, and all will be well soon. If you're a seller and thinking of selling your Hudson Valley home, well...now is a great time.
Got any questions for me? Reach out to me here!
Thanks for listening,
Licensed Real Estate Salesperson
J Philip Real Estate, LLC.