I wanted to share a bit of information about the difference between a hosing crash and an economic crash and what impacts it may have on the real estate market.
To separate this out: A housing crash such as what we saw in 2008 is an issue within the fundamental housing market that causes it and/or the economy to crash, or in this past case the entire world economy. Not to get too in-depth, but this was caused due to a number of factors including: high interest rates, speculation that the market would continue to rise with no cap, risky lending tactics and no money down/100% financed properties, adjustable rate mortgages that could swing wildly, all tied to a downturn where people were unable to refinance or sell their home and owed far more than it was worth. The core of this issue was completely housing and lending based.
A recession/economic crash such as what we are in right now, is not a housing issue at the core. Yes, housing will be impacted, but it is not the problem. Unemployment is very unstable and as areas shut back down, it is uncertain how much of an impact will be realized and how long this will go on for. Thus far there has also been enough government intervention to keep the majority of people out of immediate trouble and though the amounts and ways this is going to be done are being adjusted, it is looking like this plan will be continued as we navigate the current pandemic.
Now having separated the difference, let's look at the market a little bit. Coming into 2020 the market was stable, moving very slowly towards a buyers market with reasonable interest rates and healthy home appreciation. Though lending was loosening a bit to allow for more people to have access to homeownership or the purchase of investment property, lending standards were staying in a reasonable range making sure people were not being over leveraged.
Now with all of that background setup, here is what I am seeing in the market:
Homes are selling fast, with all of the economic uncertainty, many people slammed on the breaks in regards to selling their home. Demand has returned in an already overly housing starved market, we are seeing homes go under contract at record speed with multiple offers. Pricing isn't rising at an alarming level, but do to natural competition and lack of inventory there is certainly a slow creep up.
On the slightly longer term expectation, we are certainly not out of this yet. It is likely that we will see unemployment at a higher rate than before this started. While most businesses do intend to reopen and hire staff back, there will be businesses that are unable to survive and shutter, or people who don't get brought back due to lesser work load and impacts of a slow restart.
Now the reason for all the background is to evaluate what happens now...Because this is not a housing crisis and lending and appraisal standards have drastically changed since 2008, people are in very different situations. People now have skin in the game, they didn't get 100% financing, they actually had a downpayment. they have also been paying down their mortgage and creating more equity. This means that even if we have an uptick in strain from unemployment, generally speaking, most people would be able to sell their home and at minimum cover the cost, or even make a profit from the equity they have earned. Even if the market dips a bit, there is room to absorb the loss of value.
Though not ideal, this creates a completely different situation for the housing market. Keep in mind, here in San Diego there is often far more demand than homes available. This also means there are many sources of income funding the market. With foreign investment, homes being purchased for eventual retirement, the huge military presence that tend to have more stable finances, self employed go-getters, tech companies, a huge medical industry, even when one sector takes a hit, several others stay stable or even grow.
Wrapping up: Though there may be pockets of distress we want to always keep an eye on, as a general whole San Diego housing is not in trouble......at least not in this sense. A final note to leave you with. The biggest lesson from the housing crash of 2008 is the importance of communication and mitigating damage. If you are struggling, it doesn't hurt to reach out to trusted professionals and look at all the options. A good Realtor® isn't just going to try and get you to sell your home, but navigate the best options for your situation. Knowing what your home is worth, looking over the specific market you are in and having a game plan will keep you ahead of the curve no matter what happens.
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As always make it an epic day!