Across the country, the housing market has been anything but normal for the last eleven years.
In a normal real estate market, home prices appreciate 3.7 percent annually. Below, however, are the price swings since 2007 according to the latest Home Price Expectation Survey:
- Between June 2007 and February 2012, home values depreciated 6.1 percent annually. From March 2012 to the present, values have appreciated 6.2 percent annually — i.e., the market has been recovering. (Reminder: These are national statistics I’m talking about, not Tri-Cities-only numbers.)
- These wild swings in values were caused by an unusual imbalance between the available supply of inventory and buyer demand in the market. In a normal market, there would be a six-month supply of housing inventory.
- When the market peaked in 2007, inventory levels grew to 7+ months because hhomeowners and builders were trying to take advantage of a market that was fueled by an “irrational exuberance.” Prices began to fall because there weren’t enough buyers to meet the number of homeowners/builders trying to sell. Then, foreclosures came to market. We eventually hit 11 months inventory, which caused prices to crash until early 2012. By that time, inventory levels had fallen to 6.2 months and the market began its recovery.
- Over the last five years, inventory levels have remained well below the six-month supply needed for prices to continue to level off. As a result, home prices have increased over that time at percentages well above the appreciation levels seen in a more normal market.
That was the past. What about the future?
At the national level, we currently have about 4.5-months inventory. This means prices should continue to appreciate at above-normal levels, which most experts believe will happen for the next year or so. However, two recent developments suggest that we may be returning to a more normal market.
1. Listing Supply is Increasing
Both existing and new construction inventory is on the rise. The latest Existing Home Sales Report from the National Association of Realtors revealed that inventory has increased over the last two months after thirty-seven consecutive months of declining inventory. At the same time, building permits are also increasing which means more new construction is about to come to market.
In the Tri-Cities, specifically, housing permits are generally up as of July 2018 when compared to the previous year, thanks mainly to growth in Kennewick and Richland.
(Chart via Tridec.org.)
2. Buyer Demand is Softening
Ivy Zelman, a widely-respected real estate industry expert, wrote this in her latest ‘Z’ Report:
“While we continue to expect a resumption of growth in resale transactions on the back of easing inventory in 2019 and 2020, our real-time view into the market through our Real Estate Broker Survey does suggest that buyers have grown more discerning of late and a level of “pause” has taken hold in many large housing markets.
Indicative of this, our broker contacts rated buyer demand at 69 on a 0- 100 scale, still above average but down from 74 last year and representing the largest year-over-year decline in the two-year history of our survey.”
With supply increasing and demand waning, we may soon be back to a more normal real estate market. We will no longer be in a buyers’ market (like 2007-February 2012) or a sellers’ market (like March 2012-today).
Here’s what that means: Prices won’t appreciate at the levels we’ve seen recently, nor will they depreciate. It will be a balanced market where prices remain steady, where buyers will be better able to afford a home, and where sellers will more easily be able to move-up or move-down to a home that better suits their current lifestyles.
Returning to a normal market is a Good Thing. The housing market is not falling apart. We’re just returning to a situation that will be much healthier for both buyers and sellers.
As I said, the stats mentioned above are primarily national numbers from across the U.S., and it’s always possible that individual markets may not follow national trends. As always, the Cari McGee Real Estate Team will be watching our local market trends very closely so we can give our clients — whether buyer or seller — the best guidance and service for successful transactions.