San Diego County Housing Report: Values Will NOT Plunge
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Many believe that the rapidly slowing housing market will lead
to crashing home values, yet the facts do not support this theory.
No Crash Around the Corner -
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Housing data illustrates that there is not a housing crash on the horizon.
According to researchers at Penn State University, only 8% of the things people worry about come true. From finances to job security to relationships to health, worry is everywhere. The collective mind seems to almost always jump to the worst-case scenario. It seems as if nobody is immune to worry. Click here to get your updated home price.
With strong inflation numbers, Wall Street volatility, and soaring interest rates, panic and worry are in the air. So many are jumping to the conclusion that as housing slows, values will eventually plunge as they did during the Great Recession. They recall how home values surged from 2000 to 2006, plummeting after the subprime meltdown in March 2007. Everyone remembers the deep scars of the worst recession since the Great Depression.
Even though so many are anticipating and reporting that a housing crash is imminent, it is not going to occur, not now and not in the foreseeable future. Why not? Collectively, homeowners across the country were sitting in a much different position before the Great Recession compared to where they stand today. To best understand the differences, let us take a closer look and compare the two.
First, the direction of housing has everything to do with supply and demand. Before the Great Recession, the inventory climbed to over five times where it stands today. There was a glut of homes on the market. Like today, demand was muted due to the deterioration of lending standards. When low demand was pit against a glut of available homes, the market lined up heavily in favor of buyers, and prices sank. Back then, there were low or no down payments, fraudulent lending practices, and lax lending standards and programs, allowing anyone to get a loan and purchase a home. The average buyer's FICO score was 681. Today, buyers purchase with higher down payments, tight qualifications, and lending standards, and the average FICO score for buyers is 745. Cash-out refinances accumulated for years leading up to the Great Recession. Yet, today, pulling cash out has been plunging as rates have climbed. There is plenty of tappable equity, and many homeowners own their homes free and clear.
In 2007, homeowners were upside down, owing more than their homes were worth. Then, banks were in control of the housing market because of a wave of foreclosures and short sales that lasted years because of enduring poor lending standards. Today, the delinquency rate is at its lowest level since tracking, much lower than the average from 2000 to 2005.
Looking at now versus then side by side, it is easy to understand why the two time periods are entirely different. Since the Great Recession, home buyers have been more substantial. With the vast majority of homes sold over the last couple of years procuring multiple offers, Darwinism has taken place, survival of the fittest. As a result, only the strongest buyers have been winning: strong credit, money in the bank, and good jobs.
It will be impossible to build an inventory that resembles the glut of homes available from 2006 through 2011. Today’s 4,140 home level is 79% less than the height reached in 2007 of nearly 20,000 homes. Moreover, the inventory right now in San Diego County is 39% less than the 3-year average of 6,823 between 2017 and 2019, when things were normal before COVID. And back then, home values were methodically climbing each year.
Yes, supply is rising. Demand is muted. The housing market is slowing. The number of offers received is dropping. The number of offers over the asking price is falling. Sales are down. The number of price reductions has been steadily climbing. The pace of housing, the Expected Market Time (the amount of time between hammering in the FOR-SALE sign to the opening escrow) has slipped from an Insane Seller’s Market (less than 40 days) in March when it was at 18 days to a Hot Seller’s Market (between 40 and 60 days) today at 56 days. It is about to slip into a Slight Seller’s Market (from 60 to 90 days). Later this year it will decelerate to a Balanced Market (between 90 and 120 days), a market that does not favor buyers or sellers. And, if mortgage rates remain elevated above 5.5% with duration, it will most likely become a Slight Buyer’s Market (between 120 and 150 days) by year’s end. Yet, in 2007, the Expected Market Time surpassed 400 days in San Diego County, a Deep Buyer’s Market (over 150 days), when home values sank.
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San Diego Market Statistics
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