Is The U.S. Real Estate Market Crashing?
Everyone wants to know "is the sky falling?". Well, it hasn't yet. With the initial shock to our way of life behind us, and states starting to re-open, we're seeing more real estate activity. People are starting to feel a bit safer to venture out responsibly. Since then, our phones and email inboxes have been filling up with showing requests and we're accommodating qualified buyers with the recommended safety precautions.
I've always said that I'm not in the "predict-the-future business" but rather the "expectation-management business". But who are we kidding here? You want to know what I, the professional, think the market is going to do. So, I'm going to take out my crystal ball.
1. Recessions ≠ Housing Crisis
The one thing we know with certainty is that recessions and real estate markets do not run parallel with one another.
We need to look at what was driving our market prior to the pandemic. Despite being in year 12 of what is normally an eight-year cycle, historically-low interest rates and low inventory served as constant moderate tailwinds to markets, especially those similar to mine in Los Angeles, where pricing seemed to exceed affordability. However, supply meets demand, and we have no supply. But I think there's an underlying market-driver that people are forgetting about...
This generation, now larger than the Baby Boomers, were battered by the 2008 financial crisis as they started their careers, which delayed some of the milestones that propel real estate change such as marriage and starting a family. But in 2018, Millennials represented the largest cohort of home buyers at 37%. Pandemic or not, life change drives real estate change, and the Millennials have deferred their life change long enough. The National Association of Realtors also reports that Millennials also make up 30% of the national population, 45% of all mortgage applications, and 20% of all new listings are from Millennials moving up.
When analyzing showing data, ShowingTime reports that March 2020 showings were higher than March 2019. By the end of March, showings were down 68% in California due to the pandemic. However, the amount of showings have been rising by the day, and we're now almost back to 2019 levels.
4. New Listings & Sales
When looking at Los Angeles county single family and condos, in the first half of April there were 2,107 new listings and 1,916 sales. In the second half of April, there were 2,338 new listings and 1,536 sales. New listings went up and sales slowed down a bit. This is likely a result of the fear of the unknown, people staying home more and tougher lending and showing standards.
Because of the above, our real estate market is not expected to plummet anywhere near 2008 levels. Millennial transactions, low interest rates and historically-low inventory will continue to add stability to our nation's favorite asset: real estate.