Written by Edward Smith
Steve Flach, president of the Fresno Association of Realtors, has been asked the same question a lot recently.
With economic angst sparking memories of the 2007 crash, Flach said people are asking if another downturn in the housing market is coming.
Lenders and real estate agents don’t think that’s the case.
It’s normal for homeowners to equate a declining GDP with a declining housing market, Flach said.
“Recession, inflation, it has an impact on people’s mindsets, but it also has a big impact on the cash that they have,” Flach added
Paying more for gas and groceries is a factor on whether to make the leap of buying a new home. And a home’s value is only worth what someone is willing to pay for it.
That’s how Brendan Farrell, branch manager for American Pacific Mortgage in Visalia, explains a reported decline in home values.
Rather than those prices going down, it’s sellers having to rethink list prices.
Two months ago, homes were selling far above their list price — something sellers grew accustomed to. If a home was appraised for $400,000, a seller might list it for $420,000 to see if there were any bites. So when those list prices come down, it’s more of a return to normalcy.
Farrell called it a “learning curve.” Real estate agents are having to market homes again as the number of offers decreases.
“Two months ago, we had a population of Realtors who had never done an open house because they simply didn’t need to,” Farrell said.
A good home on the market could get 15-20 offers a listing. Now, buyers are getting two to three, Flach said.
Flach outlined four reasons why he thinks the housing market — especially in Fresno — is stable.
The equity people have in their homes has reached record levels. Across the nation, homeowners have built a record $11.5 trillion in value in their homes, according to Housingwire.com. While a lot of this comes from rising home values, Flach said 99% of homeowners are in a positive position.
That means the percentage of a home people actually own protects them from catastrophe. In the event of a job loss or life-changing injury, people can sell their home and still walk away with a little bit in their pockets.
Fifteen years ago, that wasn’t the case, Flach said. When people lost their jobs, they didn’t have the positive position they do now. Foreclosure sales net 10% less than traditional sales on average, Flach said. For a homeowner already behind on their mortgage, selling a home isn’t enough to get them out of debt.
Additionally, cash-out refinancing has also dropped off. While there have been a lot of refinancing deals in the past few years to lower interest rates or decrease the term of a loan, most homeowners have veered away from “treating their home as a piggy bank,” Flach said.
Farrell estimates that the number of cash-outs made up a little less than half of his refinances over the past couple years. But the marked difference was that he didn’t see homeowners cashing out their entire equity, but rather portions.
Farrell does predict that with credit card rates increasing, cash-out refinances may become more popular as refinancing interest rates may be more attractive than a credit card.
The second factor that differs from the Great Recession? Changes in underwriting guidelines. While there are still subprime loans in the system, lenders have gotten rid of the most egregious ones.
The rise of subprime loans fueled the Great Recession .
One loan offered at the time allowed a homeowner to pay less than the interest amount, so that every month the amount owed on a home would actually increase.
The most popular loan now is the 30-year fixed rate.
Even the replacement for the subprime loan — called the non-quality mortgage — is very limited in its applicability, said Farrell.
The third thing Flach looks at is lack of inventory. After the market crashed in 2009, the construction industry never fully recovered. In Fresno County, Flach says there is a shortage of 17,000 housing units. And at the current rate of construction, assuming population grows at the same rate, it would take seven years to reach that level.
The last thing Flach looks at is unemployment. Unemployment rates ticked up slightly in June (5.8%) compared to May’s 5.3%, but still matches 2019’s lowest unemployment rate of 5.8% in September.