Negativity Sells. There are abundance of doom and gloom real estate headlines out there. They do grab the attention of the public. From bubbles to crashes to foreclosure waves to coming collapse in home prices, the same storylines are pushed on a weekly, monthly, and annually basis. Medias and influencers don’t make money without views or clicks.
There are no doubt, a lot of uncertainties happening in the market. Without having some datas, it is pretty difficult to sift through all those headlines to determine what is true and what is fiction.
Let’s bust some myth in today’s video!
Myth #1 – Housing is in a bubble and about to crash
This could not be further from the truth simply based on supply and demand. The last time housing market crashed during the financial crisis of 2006. Unemployment was at 10%, housing inventory in the US surged from 2.2 million to 4 million homes on the market for sale. There were a lot of seller forced to sell because they are in a financial jam, cannot pay their mortgage payment and without equity. Today, the total housing inventory in the US is at 1.21 million homes, less than 1/3 of where it was during the financial crisis. Unemployment rate is less than 4% and homeowners all have strong credit, record low interest rate, and record high equity. That is a huge change from profile of homeowners back during the financial crisis, low credit, little to no down payment , subprime loans, teaser adjustable rates, fraudulent lending.
Myth #2 – Housing Inventory is just as bad as last year
I am sure you’ve heard “we have an inventory shortage problem”. There is definitely a scarcity of supply – A trend that a big part due to the historic interest rate. No one wants to walk away from their 3% rate and get into something above 7%. However, the inventory is rising. In LA county, inventory has grown from 6827 homes at the beginning of the year to 9622 homes today, a rise of 41%, the highest since December of 2022. We are still seeing inventory 26% lower than averages before the pandemic.
Myth 3 – When rate drop, price will drop.
Currently, low mortgage rae is preventing homeowners from selling. 84% of the homeowners in California have a rate below 5%. As rate drop, we will see more people putting on their home on the market. At the same time, the buyer’s purchase power increased dramatically as well. For every 1% drop in rate, the monthly payment drops about 10% and that will bring more people into the market. For every 1% drop, the borrowing power also increase 10% and that will help buyer with the bidding process. With a drop in rate, the increase in demand will still outpace the improvement in the number of home owners willing to sell.
Myth 4 – With unemployment rate rising, there will be a lot more foreclosure
We did see the unemployment rate has risen from a 50 year low of 3.4% to 3.9% in April. Yet, that is still a historic low rate. Even if it continues to rise, it’s still a long way to go until it gets problematic. From 1996-2006, the average was at 4.98%. Yes, with more unemployment , more people will have problem with their payment however, with record high in equity, most people won’t have to go through the entire foreclosure process. They can simply sell their property regularly and take their equity to regroup.
Did I bust some of those myth or fake news for you? You can check out the blog for more data and visual.
If you are thinking about taking advantage of this current market in anyway. I am here to help.
