What would it take to crash the real estate market?

A lot of people subscribe to the “What goes up must come down” theory on markets. I don’t. I tend to just use that one when describing gravity.

For real estate, we have only really ever had prices go down twice in the history of tracking such stuff. Once was the Depression which caused ALL markets to go down, and the other was the Great Recession which was largely caused by bad mortgages that were toxic to the stock market. Neither time actually had anything to do with just the real estate market.

Today’s market is probably the healthiest it’s been in a long time. Prices are high due to supply and demand. Sure, low interest rates help but not as much as you would think. People acclimate to interest rates. I remember bragging about getting 6.625% on my first home when all my homeowning friends were over 7%.

When people on Youtube or those who write for the news look at the real estate market, they tend to not look at the whole picture. I am sure you have seen headlines about how all the people in mortgage forbearance would crash the market once they got foreclosed. Didn’t happen. All those people who needed to sell had enough equity to sell and avoid foreclosure. What about all the Baby Boomers who would leave a huge void in the real estate market as they sold their homes and went into retirement homes or to reside on the other side of the Pearly Gates? No mention of the youngest generation of buyers entering the market who would keep the wheels of the whole market greased so everybody can move. Years ago I described this like a baseball game where the bases are loaded. The Player on 1st base wants to run to 2nd. The Player on 2nd base wants to run to 3rd. The Player on 3rd wants to run home. What needs to happen in order to keep all those Players moving? For the Batter to hit a home run. The first time buyers are the most crucial element of the market. Without them, no homeowner can part with their old house in order to move up to their next one.

Everybody knows how Supply and Demand works, right? Let’s apply it to real estate. Most people involved in selling or buying will be doing both. Most sellers are also buying. Most buyers are also selling. That means there is no net gain or loss in the supply/demand ratio regardless of the market. This is why the supply/demand ratio got so bad during the Great Recession-You had so many foreclosures where the previous owner did not reenter the market as a buyer. Other than in such catastrophic times, the only people who are doing one side of a sale are first time buyers or those who have passed away or are going into some form of assisted living. Historically there have been more first time buyers than there are those who are exiting the market permanently. (I am excluding those well off enough to purchase second homes since that is a smaller market and we are not in a big area for that like Florida or any other vacation destination.)

So then, what would it take to tank the real estate market if it has nothing to do with real estate? It would take something terrible to happen with the economy…..meaning something bigger and broader than just the real estate market that is like a Tsunami and wipes out everything in it’s path. Let’s hope that doesn’t happen any time soon!

2 thoughts on “What would it take to crash the real estate market?

  1. Good point overall that we’re not in one of the hotter investment and speculation markets. I recall reading about this area after the 2007/8 recession began that we were much less affected than most areas. Sadly, as a state on whole, we had many that couldn’t get approved for even the “cooked” mortgages, so we had less defaults than many areas; also less folks than larger cities where both primary earners were mortgaged to the hilt betting on the price increase for their flip. I know it was super bad in Las Vegas, Detroit, other areas, and didn’t buy/sell anywhere near those years, but did prices here, on whole, actually go down? I know it got hard to qualify as banks failed and reset mortgage qualification guidelines, but after a couple years they (that didn’t/weren’t failing) were all sitting on more stagnant money than they knew what to do with.

    1. It’s been a while since I did some research on our area, but I think overall we dropped about 10-15%. The better neighborhoods in each price point didn’t drop as much as others. Back then, a buyer had so many choices that they could easily get into the best neighborhood. The B and C grade neighborhoods took forever to sell even at a big discount. Today we are back to where buyers feel lucky to have paid full price for any house in any neighborhood.

      For a while after the crash, it was very tough to get a mortgage with the revised guidelines.

      I got one of the last 100% loans late in 2007. I wanted to keep my old house as my first rental. I didn’t have a down payment because I wasn’t selling the old house and didn’t use equity from selling the old house to use for the downpayment on the new house. I bought that house at the bottom of the market in Andover Hills and still have it as well as the old house that became my first rental. I don’t know if I could have kept it without that 100% loan back then.

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