Should you Buy Or Sell now in this changing Housing Market
Excellent underwriting. As you may recall, during the recession, prior to the recession, banks made toxic loans to anyone with a driver’s license. It was only a joke– but that is how loans are distributed. They extended loans to each and every one. And that was part of the reason. as a result of the housing crash. Many lenders suffered significant financial losses. As a result, lenders and banks were highly rigorous and cautious in granting loans following the crashes in 2020, 2011, and 2012. As a result, when they underwrite, they double-check everything. In reality, we just bought a home last year—an investment property for short-term rental—and you would not believe how much scrutiny they put on our tax records, down payment, source of funds, and employment verification. They double-checked everything before approving our loan. Finally, they gave us the money, but they double-checked everything. And this has been happening since 2014. As a result, the underwriting standards were quite stringent. As a result, every buyer who has purchased thus far has been quite solid and stable. As a result, there were no hazardous loans; all of the loans were solid. So, have a look at this graph. It demonstrates that mortgage credit quality has never been higher. According to the graph, the percentage of mortgage loans that were late or in default was nearly 14 in 2009. When compared to 2022, just after the epidemic, that rate has dropped to four. That is, even after all of this, delinquencies and foreclosures are not as high as they were prior to the recession, in 2007 and 2008. So, when it comes to foreclosures and the housing meltdown, that’s a solid statistic to consider.
Prices are sticky downwards when there are no forced sales. So what does that mean? Well, as you know, we have had some price drops, what we call a deceleration in home prices. They haven’t dropped in certain areas. Yes, they have dropped one or two or 3%in some metro areas and high-density areas, where the prices have really gone up. So they’ve stopped. So there has been some slowdown, but overall, nationwide, prices are still holding. So it’s all about supply and demand. Even with the high interest rate, as of the last few months, buyers were still buying and making offers. Yes, there are not 20 offers, or multiple bids on a property, but there have been two or three bids on homes as of quarter 2022. Two homes are selling over the list price overall. And this is because there’s a shortage of homes and people want to buy homes. So there is demand. We still have a shortage. So the supply is low and the buyers,despite the high prices, want to buy. So the prices are very sticky right now. They’re not going to drop They may decelerate. In fact, they have been decelerating.
The inventory is still historically low. According to Realtor.com, the inventory so far in 2022 has gone up 26% year over year,which is quite a bit of inventory. But when there was low inventory to begin with, and it went up 26%, we are still short of homes for sale. So that will hold the prices, because, as I mentioned earlier, there’s demand for homes. Buyers still want to buy. The rents are very high. Buyers are moving out of the areas concerned into remote areas. So there’s demand for housing. And as long as there’s a shortage of homes, home prices will stay high. They will get the list price,or maybe lower than the list price. They may be down so far by one or two or 3%, but they haven’t dropped 20 or 30%. Let’s look at this chart from Realtor.com. As you can see, as of August 2022, the yellowbar shows that there are approximately 7,800 homes for sale. If you look at the Orange Bar in 2018, the number of homes for sale was almost one million homes for sale. And comparing that to the Orange Bar of 2019, there were almost a million homes for sale, compared to 780 in 2022. So there is a shortage of homes. As I mentioned earlier, builders have slowed down. And the other thing that’s going to cause a shortage of homes is if you’re a seller, some of the sellers are thinking, “Wait a minute,the interest rate has gone very high, almost 7%.” As of yesterday or a couple of days ago, it was 6.82% according to the bank rate. So if I’m a home seller and I bought my house four years ago, let’s say at 4%,and now I’m thinking of selling and buying something at 7%, I may have second thoughts. So the sellers may have second thoughts about selling, and that will add to the shortage of homes already there. So let’s see what happens come January 2023 and if there is a housing crash coming. But according to these numbers, it doesn’t seem like there’s a housing crash coming. As I mentioned earlier, over the last ten years, prices have gone up and up and up and up. In fact, my house has more than doubled, which means not just me, which means nationwide, all homeowners have a lot of equity. In fact, there was a report that showed an average homeowner nationwide has an equity of$328,000, which is the highest in history. And that is, of course, an inflation-adjusted number. But that’s a lot of equity. So if the seller loses a job and decides to sell, and doesn’t have a job for a year and then decides to sell, he can still sell it, or he or she can still sell it because they have a lot of equity. So until that equity comes to the amount of the loan amount, we don’t see any foreclosures. So the first amount of equity in your home is depleted before foreclosures become rampant.