Real Estate Myths: Homeownership is at an all time low and the Housing Market will Crash Soon
Like other things in our world Real Estate is not immune to myths, urban legends and conspiracy theories. There are two that seem to be making the rounds that are patently false and based in no truth, data or reality. These two are:
Homeownership is at an all time low.
The Housing Market is going to crash soon.
Let’s first tackle the myth that homeownership is at an all time low. Actually, homeownership is at its highest level in 12 years. This may be surprising to you. The lowest rate was in 2016 which was 62.9% and the highest rate is 69.2% which happened between July 2004 and January 2005. During the run up to the Great Recession it jumped around from 68.6% to 69.2%. It started tapering off in 2007 from 69% down to 67.2% in 2010 and bottoming out in 2016. Our current rate of homeownership is at 65.6%. This is considered the New Normal and HEALTHY.
Now for the HUGE Myth and Conspiracy Theory…The Housing Market going to crash soon. Will it? Heck no! Why isn’t it going to crash? It’s because there is an oversupply of qualified buyers in the market and an undersupply of housing units to sell.
This is evidenced by there being just 1.9 MONTHS of inventory in the United States. Locally in the Phoenix Metro Area of Arizona where I practice real estate there is just 15.76 DAYS of inventory. There is an OVER supply of people who can afford properties and an under supply of available housing units for those buyers to purchase.
But what about the skyrocketing prices? Yes prices have gone up but it’s not super unhealthy. Here locally we went up 17.5% from 2019 to 2020 and right now year over year we are at 24.04%. The Cromford Report and ASU predicted in December of 2020 that over that next 12-15 months we would see 15-20%. This was and still is due to the net amount of people moving here per day, which is around 230 AND the shortage of properties to purchase. Builders have been behind in producing housing units, people continue to move here, hence there is a Supply and Demand issue that has been exacerbated by the pandemic. The pandemic slowed the manufacturing pipeline down so now New Construction instead of taking 6-8 months for a home to be built is now at 12-18 months.
Even at today's prices which seem high to us locals but attractive to others doesn’t equate to an eminent Housing Market Crash. Prices will not fall out overnight. Prices WILL wane when affordability takes hold and then prices will level out. Thats not going to happen anytime soon because of the historically low inventory.
We are currently purchasing an average of 9,847 housing units per month and as of today/as I write this, 4,667 properties are for sale in our Realtor Multiple Listing Service. It’s a Thursday morning so that number will probably creep up towards 5,000 by Friday. That’s where we’ve been the past 2 weeks.
A Seller’s Market is defined as 4 months or less of available inventory. We are currently at 15.65 days NOT months. This is considered an Extreme Seller’s Market. In a Seller’s Market prices will and can go up as much as 10-20% per year.
A Buyers Market is defined as more than 6 months of available inventory. Not until we reach this point do prices start waning and then fall as that number of months goes up.
So what that all means is in Arizona the inventory levels would have to jump by 1,000%, almost overnight, which would put us at 5.25 months of inventory to slow the pace of housing prices. That would put us in a normal market and in a normal market prices usually go up by 4-6% per year.
We will continue to see prices go up especially in the core markets around The Valley’s employment centers and where the buyer’s perception of affordability is still great like in the extreme SE Valley, Queen Creek/San Tan Valley and areas like Peoria in the NW Valley. Mesa also shows affordability as compared to Tempe and is in high demand.
If you have any questions regarding the local real estate market within the Greater Phoenix Metro Area feel free to contact us.