LAKE MARKET DOWNTURN?
With the lake real estate market as well as the national market seeing a slowdown in the number of homes sold and price appreciation slowing; you may have concerns about what happens next. Having lived (with a career in real estate) through the real estate and overall economy crash starting in late 2007; I understand why you might be nervous about where the market is heading.
Here are my thoughts as to why today’s market is not getting ready to tank and is much different than the housing bubble that burst 12 years ago.
Since 2007, short sales and foreclosures accounted for a third of all homes purchased. The Mortgage Banker’s Association reported in late February that the percentage of loans in the foreclosure process at the end of 2018 was just .95 percent. This is the lowest foreclosure rate since 1996.
When the bubble burst in 2007, home values started to decrease. Over a four to six-year time frame, homes lost 25-30 percent of their value. Although homes are not appreciating at the rates they were a year ago, they are not depreciating. Appreciation is still continuing, just at a slower pace. I expect home prices to continue rising in 2019.
The number of homes sold dropped dramatically beginning in 2008. Comparing 2018 to 2019, we again have experienced a drop in lakefront home and condominium sales here at the lake. This is not due to a lack of interest or ability on the part of buyers but rather a lack of inventory available to purchase.
Lack of inventory is down to a couple of things. First, homeowners not putting their property on the market. Some homeowners are unable to sell due to the amount owed on the mortgage. Other owners have been unwilling to sell until home values returned to at least the amount they originally paid. Low inventory itself is another cause; owners are holding off putting their home on the market until they find another home to purchase. Some owners are hesitant to move into a larger home and mortgage after previously going through the market crash.
The second major cause is down to lack of new construction. Again, this cause has several subsets. I don’t have specific market numbers available to me, but based on my experience of the market, there are fewer spec homes and new condos being built than I’ve seen since the early 1980’s. I am seeing an increase in both since mid-2018. Builders have also been wary of starting a new venture after experiencing the 2007 downturn where many got caught short. The construction industry has a major labor shortage across the country. Building material prices have escalated making it difficult to compete with even a limited existing home market.
In response to the last housing bubble, lending requirements became much more stringent. While there are still many great mortgage programs available, they are based on much tighter guidelines which will help prevent buyers from overextending themselves. This shows up in the low foreclosure rate mentioned above. The economy and job market are also very healthy, unlike 10 years ago, which increases loan repayment rates. Foreclosures really take a toll on the overall real estate market and that’s not happening or likely to happen any time soon.
These are the main factors I point to in saying that today’s slight easing in the market is nothing like what we saw occurring in 2007.
Michael Elliott has been selling real estate at the Lake of the Ozarks since 1981. He is one of the most respected brokers in the area. If you would like to work with Michael in the sale or purchase of property, or have interest in a career in real estate, contact him at 573.365.SOLD or email@example.com or stop by C. Michael Elliott & Associates, 3738 Osage Beach Parkway. View thousands of lake area listings at www.YourLake.com. You can also view each months’ article, ask questions and offer your opinion on Michael’s real estate blog, www.AsTheLakeChurns.com