COVID-19 vs. Home Values
Hello everyone, and thanks for joining in on this video. I hope you’re staying healthy and responsible during this virus crisis.
Amidst all of the fears going around about the uncertainty in the economy over the virus pandemic, I wanted to speak to a lot of concerns and questions I’ve been getting on how this all is and will affect the housing market. This is a longer video than most, but I promise there is some great info here and I encourage you to watch and send me your questions.
I’d first like to say that no one has a crystal ball, and that this pandemic event is completely unprecedented.
Everything I’m about to talk about is based on historical data and the current initiatives our government is taking to avoid another crisis as we saw back in 2008.
The most common and general question I want to address today is “Will this pandemic cause my homes value to decrease or plummet?”
The first thing everyone thinks about is the housing crash of 2008, and for good reason. BUT, so many factors were different back then compared to now, which is why home values took suck a steep dive. And in addition, the entire crash altogether was caused by the housing market.
I’m about to show you some graphs which explain why the housing market is in a much stronger position to weather this storm today:
- First, for the three years preceding the 2008 crash, homeowners borrowed equity against their homes in the amount of over $824 billion. For the three years preceding this pandemic they’ve only borrowed around $232 billion….below 1/3 the amount preceding the housing crash
- Next, home inventory levels nationwide (or available homes for sale) were almost three times greater than they are now, and demand was steadily falling. From a simple supply and demand perspective, higher supply and lower demand equals drop in value.
**Since the 2008 crash, homeowners have made much smarter choices to protect their largest asset…..their homes. For one, as I mentioned just a minute ago, they are borrowing out much less equity . And right now, 37% of homeowners don’t have a mortgage on their homes, and of the remaining 63%, 1 out of 4 homeowners have more than 50% equity. With this much equity in homes nationwide, people won’t be running away from that money so easily, which should keep supply low. In addition, the federal government just recently announced that about 90% of homeowners nationwide will be exempt from foreclosure proceedings for at least the next 60 days, including those with government insured loans (FHA & VA), and any mortgage debt backed by Fannie Mae or Freddie Mac. However, if possible, you should still make your payments on time as this announcement will not eliminate your need to pay rather defer them.
I also want to talk about some stark differences in housing market impact as it relates to the past three historical events……….Dot.com crash, 9/11, and the 2008 housing crisis.
The dot.com crash and 9/11 were both considered “external events” which inflicted temporary fear into the consumer, just like this pandemic is doing. However, the 2008 crisis was an internal financial failure of many things…..too many to mention in this video.
On this first graph, you’ll see that for the several years following the dot.com and 9/11 events, even in the midst of a huge stock market adjustment, home values appreciated steadily on average.
However, on this next slide, the three years following the start of the Great Recession, and seeing a similar drop in the stock market, home values steadily decreased until they started rising again in 2010 - 2011.
The last slide I want to show you is how the housing market responded during the past 5 recessions in this country. According to some economic experts now, we are either in a recession right now or probable of heading into one over this Pandemic, which his why this is important to know.
During the past five recessions, home prices only decreased twice, the larges being the Great Recession of 2008. And the other in the early 90’s only resulted in a drop of under 2%.
I really hope this helped you better understand the potential impact this pandemic will have on housing.
To finish off, my team is still here to assist with all of your housing needs. Yes, we have clients that have hit the pause button right now, and we totally understand. We also have clients that need to buy and sell, and we are doing everything we can to serve their needs under the circumstances.
I hope you all stay well and healthy, and if there is anything we can do for you please be sure to let us know! Take care.