No one knows for sure when the next recession will occur. What is known, however, is that the upcoming economic slowdown will not be caused by a housing market crash, as was the case in 2008. There are those who disagree and are comparing today’s real estate market to the market in 2005-2006, which preceded the crash. In many ways, however, the market is very different now. Here are three suppositions being put forward by some, and why they don’t hold up.
A critical warning sign last time was the surging gap between the growth in home prices and household income. Today, home values have also outpaced wage gains. As in 2006, a lack of affordability will kill the market.
According to the ‘2019 Home Buyer Report’ conducted by Nerdwallet, many first-time buyers still believe they need a 20% down payment to buy a home in today’s market:
“More than 6 in 10 (62%) Americans believe you must put at least 20% down in order to purchase a home.”
When potential homebuyers think they need a 20% down payment to enter the market, they also tend to think they’ll have to wait several years (in some markets) to come up with the necessary funds to buy their dream homes. The report continues to say,
“The truth: 32% of current U.S. homeowners put 5% or less down on their home, according to census data.” (as shown below):
How Does the Supply of Homes for Sale Impact Buyer Demand?
The price of any item is determined by supply, as well as the market’s demand for the item. The National Association of REALTORS (NAR) surveys “over 50,000 real estate practitioners about their expectations for home sales, prices and market conditions” for their monthly REALTORS Confidence Index.
Their latest edition sheds some light on the relationship between seller traffic (supply) and buyer traffic (demand).
The map below was created after asking the question: “How would you rate buyer traffic in your area?”The darker the blue, the stronger the demand for homes is in that area. The survey shows that in 3 of the 50 U.S. states, buyer demand is now very strong;