Real Estate Market Update 2018

Have You Heard the Housing Bubble Talk? Is the real estate market going to crash??

Growing up I remember my Dad always said, "real estate is cyclical".  30 years later that statement resonates with me. Analyzing and predicting real estate cycles requires looking at activity month-over-month but also year-over-year. It has been 10 years since "The Great Recession" when the U.S. housing market went from BOOM to BUST! 

Recap of The Great Recession (2007-2009):

  • The United States shed more than 7.5 MILLION jobs (causing its unemployment rate to double)
  • American households lost roughly $16 TRILLION of net worth with the stock market plunge (the Dow Jones Industrial Average hit a market low of 6,443.27 in July 2008)
  • Nearly 4 MILLION homes were foreclosed each year (an estimated 7 MILLION Americans lost their homes during the recession)
  • 2.5 MILLION businesses were shuttered

The Great Recession vs 2018

  • The U.S. unemployment rate fell to 3.9% in July 2018 (9.5% in July 2009)
  • Dow Jones Industrial Average at this very moment is 25,771.16 (August 20, 2018)
  • 676,535 foreclosures were reported on U.S. properties in 2017, the lowest level since 2005 (down 76% from a peak of nearly 2.9 Million in 2010)
Although these numbers are shocking..they also help gauge the trends that will follow in 2019. Unless you are a soothsayer with major psychic abilities there is no way to predict what the real estate market will do! However, there are ways to analyze the past and make some educated assumptions.

Cyclical vs Linear Real Estate Markets

Home Price Appreciation and Depreciation
Photo Credit: Housing Alerts
Cyclical means revolving or recurring in cycles. Property values move with noticeable highs and lows or busts and booms. When conditions are booming, annual housing price gains can exceed 20-30% at its peak. Eventually the boom dies down by pushing prices to inflated levels. Cyclical markets are typically found in California, New York, New Jersey and Florida. 

Linear real estate markets are defined as a 'flat' growth curve over time, where booms or busts essentially never occur.  Linear markets are found in the Midwest as well as some of the southern (Texas) and south-eastern (Georgia, Tennessee) states in the U.S. 

The San Diego real estate market is cyclical. History shows that most cycles last 5-10 years and home values here have been rising for about 7 years. 

What does this mean for a home buyer?? You must re-evaluate YOUR long-term plan. 

The key to buying a home is not getting caught in the downward cycle when it's time to sell later. This will take careful planning that begins with a mortgage you can afford and negotiating the right sales price. Working alongside a real estate professional (like me) can make all the difference.

Here's Why The 2018 Housing Market is Nothing Like the 2008 Real Estate Market

  • 10 years ago the lending practices had major loose ends, subprime lenders earning enormous profits making mortgages to people who evidently could not afford them. (Housing Crisis of 2008/Foreclosure Crisis) The stated income and stated assets loan origination tactic used by banks were highly profitable but extremely risky, these are currently unavailable thanks to the Dodd-Frank Act of 2010. 
  • Months of Supply - in real estate is a measurement of how many months it would take for the current inventory of homes on the market to sell, given the current pace of home sales. Months of supply is a good indicator of whether a particular real estate market favors buyers or sellers. A market that favors sellers has less than 6 months of supply, while more than 6 months supply favors buyers. In 2008 months of supply jumped over 10 months, when subprime mortgage lending ceased, demand shriveled and inventory skyrocketed. This resulted in too much supply and not enough demand. Currently in July 2018 the months of supply is 2.4, clear signs its still a seller's market. 
  • Unlike 2008, economic growth is accelerating, not slowing. Even before the housing bubble burst there were signs of economic & earnings slowdown that do not exist today. We are seeing high prices in areas where income growth has been very strong. In 2005/06, we saw higher prices driven by looser credit conditions. 
San Diego Real Estate Market Update_July 2018
Photo Credit: San Diego Association of Realtors

Key Takeaways

  • Appreciation will happen over time, equity will grow over time. 
  • As rapidly as property values can go up, they can also come down. Timing the real estate market perfectly is very difficult.
  • We are currently experiencing a correction in housing, like in any market, this is normal. I see price adjustments daily. The San Diego Association of Realtors reports there are beginning to be hints of more supply in several markets across the county, coupled with a slowdown in total sales. These factors could potentially slow the longstanding trend of year-over-year median sales prices increases. For the 12-month period spanning August 2017 through July 2018, pending sales in San Diego county were down 5.7 percent overall. 

The most recent housing boom has been driven primarily by lack of supply. Tighter lending conditions have helped limit the home purchases to the most highly qualified and low risk buyers. I don't believe we are in for a housing recession but rather a housing correction, we could see smaller increases in equity and more price reductions of homes that were over-priced to begin with. 

Home Buyers - Check out this article I wrote back in 2017 (almost a year ago)
When Is The Best Time To Buy A House

I stick by my opinion, the absolute best time to buy a house is when YOUR financial profile INTERSECTS with the right house in the right neighborhood. Schedule your appointment to see if now is the best time, hiring a buyer's broker early on in the process who has your best interest in mind is CRUCIAL.

Whether you are buying or selling head over to Luxeresd.com to schedule your complimentary home consultation. 


Sources for this article include: Forbes, Bureau of Labor Statistics, Investopedia, San Diego Association of Realtors, California Association of Realtors.