Surprisingly, homeownership’s reputation as a safe investment took only a minor hit before rebounding in the 2012 Great Recession. Now, we’re entering an economic crisis that may be worse. But, here’s why homeownership is still a great investment.
During the Great Recession 12 years ago, foreclosures flooded the housing markets and home values cratered. Housing was one of the last sectors of the economy to recover. Most markets took seven painful years to recover. Prices in about 20% of the top 100 metros have still not fully recovered today, like park vista frisco.
Surprisingly, homeownership’s reputation as a safe investment took only a minor hit before rebounding and now, we are entering an economic crisis that may be worse than the Great Recession. Record numbers of Americans are out of work in the wake of the coronavirus epidemic, housing prices and sales are falling, for example 975 tiffany street. In response to the economic crisis, the pandemic is causing, consumer interest in buying a home any time soon is cratering, according to the latest Gallup survey.
Worst of all, no one seems to know what to expect. The pandemic may be with us until a vaccine is available. Can the housing economy continue in super low gear until then?
Like a Natural Disaster?
LendingTree’s latest public opinion survey compares the current crisis to natural disasters like hurricanes and floods. Their chief economist, Tendayi Kapfidze, argues that, from an economic perspective, the pandemic resembles a natural disaster more than a financial one, like the Great Recession. “Across the nation’s 50 largest metros, home prices tend to remain almost the same— and even grow slightly— in the months following a natural disaster. Three to six months after a disaster, prices appear to stay relatively stable. Within a year of a disaster, home prices tend to grow an average of 2.5%,” he concludes.
Another respected housing economist, First American’s Mark Fleming, argues that, from a housing point of view, the pandemic economic crisis differs from the Great Recession. “While housing led the recession in 2008-2009, this time it may be poised to bring us out of it,” Fleming concludes. Here is why:
- Homes are not overpriced. Today, consumers’ “house-buying power,” or financial ability to buy a home, is nearly twice as high as the median sale price of the home. Fleming’s point echoes a finding by the Urban Institute two years ago-nearly 20 million millennials are financially qualified to become homeowners but lack the cash for a down payment.
- Housing markets are underbuilt, not overbuilt. Unlike the years following the Great Recession, demand is more robust than supply. Housing is not overbuilt. “The limited supply of homes positions the housing market to lead the recovery, once the impact from the coronavirus outbreak fades,” Fleming argues.
- Equity is at historic highs. Homeowners today have very high levels of tippable home equity, providing a cushion to withstand potential price declines.
A Cushion of Equity
Fleming’s final point about equity is similar to a recent report from ATTOM Data Solutions, a leading data analytics firm in residential real estate. ATTOM found that homeowners who sold their homes in the first quarter of the year realized a home price gain of $67,100 on the typical sale, up from $66,264 in the fourth quarter of 2019 and up from $59,000 in the first quarter of last year.
The second quarter will probably see a lesser gain as a result of the pandemic. However, the fundamentals that Fleming cites will still be there if the economy shakes off the pandemic, just like a hurricane or a tornado.
That’s a “big if” and it is based on the expectation that the economy will pick up where it left off, quickly creating new jobs and reviving old ones for the 26 million plus workers who have joined the ranks of the unemployed.