Housing market shows major boom despite fears of crash
When Americans have a topic they are worried about, where do they turn? It turns out the answer is Google. Whether the answer is right or wrong, Google will always give you some sort of answer. And that holds for the question of when to buy a home.
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Since April of this year, the phrase "When is the housing market going to crash?" has surged in Google searches by 2,450%.
Home sales prices declined slightly in August. At the same time, inventory increased slightly. Many suggested that those facts indicated that an impending housing crash was inevitable.
But the trend hasn't continued, the September numbers came in last Friday from NAR, and they showed a decline in inventory and a large boost in sales prices almost nationwide.
FOX 5 real estate expert John Adams says it is an issue of supply and demand. Depending on whom you believe, we currently have about two months of available homes for sale. That indicates a strong seller's market. By comparison, an inventory of a six-month supply of homes indicates a real estate market in equilibrium. More than six months indicates a buyer’s market, and we are moving away from that condition.
Adams thinks a housing price crash similar to 2009 is extremely unlikely unless the Federal Reserve decides to raise interest rates quickly, which they have promised to not do.
As for how demand for homes can remain as high as it seems to be, Adams suggests four reasons:
Today's lending market is fundamentally different from 2008-2009 when we offered no-asset, no income, no job loans with almost nothing down. Today, borrowers must be well-qualified before they are approved, and most are putting down large down payments.
With interest rates set at historical lows for the purpose of helping the economy ease out of the pandemic, borrowing to buy a house is comparatively inexpensive compared to years prior to the Great Recession. That’s not going to change.
Homebuilders still have not fully recovered from the shellacking they took in 2009. Many left the building business altogether. Those that remain are extremely (and understandably) cautious. And those that are building are experiencing supply chain problems and a major lack of skilled labor. These factors will not change overnight.
Finally, Adams can give you another 45 million reasons that home prices will continue advancing for at least the next few years. It’s called the millennials, and they are larger and better educated than the Baby Boomers of the post-WW2 era. We’re staring right into the eye of a "once in a generation'' boom in household generation that may very well last for many years to come.
The bottom line is that while we’ve all been taught that "what goes up must come down," but even that old saw can’t change the law of supply and demand. Home prices have soared over 20% since the pandemic began. Economists at Goldman Sachs last week predicted that prices will jump another 16% in the 12 months ahead.
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