Remember when it could take years to sell a home? MLS’s were
flooded with distressed properties in 2008 in the wake of the financial crisis.
Today, of course, it’s the opposite story. It’s generally
taking just a couple of weeks, and sometimes days, to find a buyer. From
listing to contract, homes typically sold in 17 days in April, the fastest rate
ever in most markets. Home buyers can’t risk leisurely weighing several
listings before committing to likely the most expensive purchase of their life.
Rushed decisions can easily lead to buyer misgivings—about overspending for the
home, its size, or having insufficient reserves for upkeep. Still, most buyers
come to see they made the right decision In these competitive times. Seeing
prices, and hence their wealth, rising helps.
Could it all crash as happened in 2008 to 2010? Not likely.
The current housing cycle is fundamentally different. We thankfully don’t have
risky subprime mortgages that overstretched buyers’ budgets. The gatekeepers at
banks, mortgage brokers, and government regulations demand that loan-to-value
ratios, debt-to-income ratios, and income documentation meet guidelines before
a mortgage is approved. To be sure, even
with soundly written mortgages, we know some defaults can occur.
A second major difference is supply. Leading up to the
housing bubble heyday, builders overbuilt. By NAR chief economist calculations,
America had 2.1 million surplus housing units by 2006. Following the crash,
underproduction steadily chipped away at the surplus, such that inventory
normalized by 2011. Continuing underproduction led to the housing shortage. By
2015 the shortfall was 2 million homes. By the end of 2020, it totaled 4.8
million homes. The lack of inventory is why home prices are in no danger of
falling sharply.
Homebuilding activity in 2021 will be slightly above
historical norms. But it will take at least a few years to correct the massive shortage.
In the meantime, we expect the national median home price to rise 9% this year
and another 3% in 2022. Hyper speed home buying should taper off by the year’s
end as supply improves and affordability challenges persist.
