Real Estate: Crash, Correction, Or Neither?
“The Sky Is Falling! …Or Is It? A quick insider look at what a real estate market is made up of1 Depending on who you listen to or what source you’re getting your information from, the real estate market is one where you will find the most certain and uncertain people literally at the same time, saying the same things, in their own different way. And don’t be surprised if you hear influencer “guru’s” and top-name celebrities and even influencer real estate “celebrities” share their “insight” to the direction of the market…they will be happy to do so, after all, it gets attention and ultimately it gets the clicks they’re looking for out of you. But is there any truth behind their statements? Well I guess it depends on which independent statement you’re referring to and what the agenda of that individual happens to be at that moment. Remember, anyone can say “The Sky Is Falling!” as loudly as they want, but it doesn’t mean that it is, or, better yet, what exactly is falling from the sky? Is it rain? Is it leaves? Is it an acorn that drops on your head because you’re under a tree? Either way, what I am trying to say is; no one can predict what’s going to happen next, no matter how big or how relevant the source saying it, is. So Then Will There Be A Crash, Or Not? Since even the biggest “names” can have inaccurate predictions Well, the market isn’t primed for a crash, but that doesn’t mean there can’t be one. Let’s take a look at the most recent “crash” that resides in all of our minds, the crash of 2008. Back in 2008 banks were literally giving loans away to anyone who asked for one. It was almost as though banks had a serious quota they were about to miss, and if they didn’t give loans to everyone, they would suffer greatly! So that’s what they did. There was even speculation that a select big-name bank had issued a mortgage to a dog. Yes, a dog. Don’t ask. The fact that even a canine was able to get a loan was the most disturbing part of it all, but also was the greatest indicator that the banking sector was primed to be in serious trouble. A wide variety of high-risk loans were being given to people who barely went through a financial qualification process, others opted for loans which didn’t make financial sense (interest-only loans, anyone?) and yet others were even going so far as to either inflate their income artificially, or, simply fabricated their income altogether just to get a mortgage. What followed was a real estate boom. You had buyers all over purchasing homes like crazy. Prices went through the roof and affordability quickly became an issue. This is the basis of those today who claim there’s a “crash coming,” the rush of buyers and lack of affordability. What’s being forgotten, however, is that the main factor for the crash of 2008 is completely missing from this equation; the banks lending frivolously. Ultimately, a great number of people who were financially undeserving of loans were beginning to default on their loans and thus a sell-off of properties began, creating an overabundance of homes for sale, creating a crash of home prices, defaults, foreclosures, short sales, etc., and there you have it, the Crash of 2008. We’re not there, we’re not even there. So we can put this theory to bed. The next theory was “the pandemic.” The pandemic was supposed to not only bring the real estate market to a halt from its high prices, but was supposed to reverse them altogether. The theory was that without jobs and the ability to work, people wouldn’t be able to afford their mortgage payments and as a result be forced to sell, injecting more homes for sale, bringing the extreme seller’s market down because inventory (homes for sale) would be on the rise. Unfortunately, not enough homes came to the market because both federal and state governments stepped in along with the banking industry and literally fed money into the hands of Americans enabling them the ability to pay their bills, while banks enabled homeowners to defer payments temporarily. Crash averted. The Possibility Of A Real Estate “Correction” If it isn’t going to swing back the other way, then maybe this The more likely scenario would be a “correction,” but like with everything else, there has to be both a basis and a reason. So far, we have the basis; home affordability is reaching an all-time low when now also combined with decade-high mortgage interest rates, but the reason would have to include an adjustment in the supply and demand. Will the basis outreach the reason or could they both work together to make a correction happen? So far in 2024 the answer is “no.” While there has been a drop-off in buyer activity, the drop-off wasn’t enough that it will prevent bid wars from occurring on homes. Bidding wars are still rampant at the moment. The theory is that a hike in interest rates is not powerful enough to stop the supply-and-demand issues. Purchase power has also seen a boost with work wages increasing across the board in New York, enabling people to afford more even if it costs more. What would have to happen in order for a correction to occur? It’s my theory that we would have to see high interest rates throughout the summer going into the fall. During the fall and winter seasons, real estate is at its least active, if the combination of inactivity (by comparison) and high interest rates were to persist, it may create a situation where home buyers would lessen, putting relief on the supply-and-demand issue. Alternatively, an ironic way to fix the issue may be if interest rates were to fall. One key factor among homeowners not wanting to sell their home is tied to the interest
