As the real estate market has veered into uncharted territory over the past 18 months, taking the whole industry on a roller-coaster ride of unprecedented surges in demand and price appreciation along with rapidly evolving consumer behavior, many have been asking when and how will it all end? Will the housing market crash?
According to former California Association of REALTORS® Chief Economist Leslie Appleton-Young, the worst-case scenario—a thunderous market crash reminiscent of the 2006 housing bubble lurking right around the corner—is something that should not be keeping you up at night.
Speaking at the virtual RISMedia Real Estate CEO & Agent Exchange conference this week, which was co-presented by the National Association of REALTORS®, Appleton-Young made a strong, data-driven case that despite the hand-wringing of many observers and pundits, fundamental metrics simply do not point toward any kind of looming implosion or rapid contraction even as real estate has become the “It Girl” of the broader economy.
“The housing market has a lot of challenges. We need construction, we need to build more affordable housing,” she said. “There’s lots of issues, but in terms of looking for a crash in the foreseeable future, as for right now, I just don’t see it.”
In her aptly named talk “The Next Housing Crash: Fact or Fiction,” the numbers point decidedly toward fiction, Appleton-Young showed.
Compared to the 2006-2008 housing bubble burst ahead of the Great Recession, there are much fewer foreclosures, and far fewer borrowers in foreclosure who do not have enough equity to cover their mortgage.
“A very different situation than we had back then,” she said.
As the market is trending toward “moderation” with an injection of new inventory likely offset by an uptick in mortgage rates, there is little to support sensationalist headlines that have pointed fingers at institutional buyers or worried about low rates overinflating prices, Appleton-Young assured attendees.
That is not to say that the numbers aren’t jaw-dropping, she added. A 9.1% increase in home prices in 2020 followed by a 14.1% jump so far this year, and a huge shortfall in inventory (somewhere between 1 million and 4 million homes depending on the methodology) have really shocked the whole industry, she said.
“We need a lot more housing built, and it’s one of the things that has kept the pressure on this imbalance between demand and supply,” she said.
Also notable—and running against the popular narrative—is housing affordability. Though the spectacular appreciation of homes has certainly priced many people out of the market, home-buying power has actually doubled since 2006, according to one analysis, and tappable home equity has also jumped from under $5 trillion back then to just under $10 trillion today, she said.
“It’s very important for REALTORS® and consumers to do the math and see what this really looks like. Affordability has been getting tighter the last couple of months…but do the analysis, it’s more affordable now,” she said.
While many of these data points are likely to pull back, Appleton-Young said other changes in the market are here to stay, driven mostly by consumer behavior. Institutional investors—who still make up a relatively insignificant percentage of the overall market—may continue to increase their footprint, she posited, after growing 4% in the first quarter of this year.
“The percentage changes are notable,” she said. “It’s probably an important issue to track going forward—there’s a lot of money pouring into real estate—but it’s not the root cause in any way, shape or form of what’s happening now.”
Longer tenure by baby boomers, who are more likely to age in place and pass on their homes to their children than previous generations, likely means that a three-month inventory supply will become the norm in a balanced market rather than a six-month supply, according to Appleton-Young.
A lot of these trends predated March of 2020, she pointed out, before the pandemic put the market on a “unique and interesting path.”
But that path, she reiterated, does not appear to be leading toward a crash despite all the head-spinning numbers and growth.
“The only way that I can see us getting from these data points that I’ve just gone through to a crash scenario would be a jobs-led recession that puts a lot of people out of work and unable to pay their mortgages,” she said. “And you just don’t see that in the cards.”
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Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to jwilliams@rismedia.com.
