05/25/2022
All right folks… I’m going to reiterate before we get started the same thing I said last month. DON’T panic, DON’T freak out, DON’T listen to the talking heads, and DON’T make any rash decisions based on any of this. The market is changing, without a doubt, and the potential for a real correction is looking more and more likely every day. This does NOT mean that we’re headed for a crash, however. That is a word that’s thrown around with such casual disregard for not only furthering our already weakening demand, but also an utter disregard for the facts and the data to support it. There is a tremendous amount of fear-mongering that happens and it is my goal to provide you with information that will help assuage your concerns, or at the very least provide context to claims you might hear elsewhere. So, with that being said, let’s get into it so you understand what’s really going on. We talk every month about supply & demand because that is a fundamental principle of economics, and it’s how we forecast changes in home values and overall market conditions. Every month, I publish the little gauges you see at the bottom, because that is the single best indicator we have and is also the easiest to understand. The gauge in the middle is the overall market index, which is a product of the relationship between supply & demand. This month, I wanted to break this apart and look at supply & demand separately and across the last two decades so we can better understand what is, or what might be happening today.
Looking at the graph, you’ll see the red line, which is demand, and the blue, which is supply. In the middle, the yellow ribbon that runs across is what is considered “normal” or “average” levels, as we measure each index by historical standards. For our market to be in true balance, both supply & demand need to be more-or-less in the normal range and within relative proximity of each other. As you can see, the only real “balanced market” we’ve had in the last 15 years was for a single year period between 2014 & 2015. The reason this balance is so important is because it determines that value of your home, and that’s what you care about the most. Values go up when we have less supply than we do demand, which has been the case for a very long time now. In fact, short of the one year period of balance and a short-lived drop in demand back in 2010, we’ve had less supply than demand since 2009… that’s a VERY long run! When the market is balanced with equal parts supply & demand, prices remain stable. They don’t go up and they don’t go down. Now, in order for values to go down, which is what everyone’s big concern is, we have to reverse the poles and have more supply than we have demand. As you can see, we still have a long way to go before that could happen. Home values lag behind the change in balance, and so even if we do shift in this direction and quickly reverse balance, values will continue to rise for a period and eventually decrease, but it takes a long time in a market as large as ours. In order for values to decrease significantly, we’d have to have a MAJOR shift… something akin to what happened during the Great Recession and, again, this market is fundamentally different in almost every way than the market that caused the last crash. Sure, supply is on the rise, demand is plummeting, but it’s still too early to be able to say just how significant this will be and how long it will last, but we know we’re seeing the beginning stages of a correction.
There is so much more to explain about this, but for the sake of brevity, let’s just say that we need to wait to see how this all
unfolds. We do our best to forecast, but predicting a market is impossible. If you’d like to learn more about this and how it would apply to your specific situation, please give me a call. I’d love to talk nerdy with you :)
