After the COVID-19 crisis was in full force, I wrote several blogs in March and April pointing out why I thought housing prices would not crash as a result of the crisis.
In response, numerous agents emailed or called me to suggest that I was being too optimistic and potentially misleading people.
So, was I right or wrong? I was neither, but my sources of information were correct.
In this recent Planet Money Podcast, an Urban Institute economist addresses this exact issue explaining, once again, why home prices did not crash – even though unemployment is much higher now than it was after the housing meltdown in 2008.
Here are the reasons:
- Fewer Homes for Sale – in 2008, there were about 4 million homes for sale, while prior to the COVID-19 crisis, there were only 2 million homes for sale. This significantly affects the supply/demand equilibrium.
- Many Fewer Foreclosures – In 2008, supply issues were hugely exacerbated by the onslaught of foreclosures too. We did not see foreclosures this time though b/c of much stronger lending guidelines and b/c government restrictions on foreclosures during the COVID-19 crisis.
- Sellers Waiting – And lastly, supply was further diminished by sellers deciding not to list their homes until the crisis abated.
I have hit this many times but the surge of millennial homebuyers just now coming into homebuying age has been and is keeping the market much stronger than expected.
Planet Money did not mention this but low rates are also a factor. When rates fall as much as they have in recent months, both buying power and incentives to buy increase.
UNEMPLOYMENT DID NOT AFFECT HOMEBUYING DEMOGRAPHIC
This is another factor that Planet Money did not address, but it is significant. Many of the laid-off workers are from the lower end of the service sector and are therefore often not part of the homebuying demographic in the first place. So, we did not see those job losses impact the market as much as many people anticipated.
Here are a few quick takeaways from all of this: (1) Consider your sources. I used Goldman Sachs Exchanges Podcast, Forbes.com, and Barry Habib of the MBS Highway as sources – and all were both objective and accurate b/c they were not partisan. In contrast, if I had only watched cable TV news, I would have either told you that the economy was going to crash completely and that we were all going to die, or I would have told you that everything is perfect and we were all certain to get rich (depending on the station). (2) Old fashioned supply and demand factors reign supreme. This is a great lesson b/c I myself often get caught up in wonky economic analyses, but sometimes no matter what is going on in the economy overall simple supply and demand factors can outweigh everything else.
WHY LIVE ANIMALS HAVE A “SELL BY” DATE
This has nothing to do with mortgages but it was something addressed in the same Planet Money podcast, and it was interesting. Someone asked why farmers had to slaughter and dispose of so many live animals when they could not find slaughterhouses to process them. The reason, per Planet Money, is that animals start to taste worse and more like whatever they eat as they get older, and past a certain age, their meat is just not salable. So, if you have a cow in your backyard and you’re thinking about eating her, don’t wait too long…
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