Michael Anderson: Is the Real Estate Market Getting Back to Normal

ERA Justin Realtor agent Michael Anderson gives an overview of past, current and future real estate cycles, suggested by Keeping Current Matters. “Housing in a normal real estate market typically appreciate with price swings. Looking back after the bubble burst in June 2007, values depreciated 6.1% annually until February 2012. From March 2012 to today, the market has been recovering with values appreciating annually. These swings in values were caused by ratios between the available supply of inventory and buyer demand in the market. In a normal market, there would be a 6-month supply of housing inventory.

Anderson added, “KCM then suggested, “When the market hit its peak in 2007, homeowners and builders were trying to take advantage of a market that was fueled with inventory levels growing to approximately 7 months. With that, many homes available for sale, there weren’t enough buyers to satisfy the number of homeowners/builders trying to sell, so prices began to fall.

Then, foreclosures came to market. We eventually hit 11 months inventory which caused prices to reduce until early 2012. By that time, inventory levels had fallen to 6.2 months and the market began its recovery.

Over the last five years, inventory levels have remained below the 6-month supply needed for prices to continue to level off. As a result, home prices have increased over that time at percentages above the appreciation levels seen in a more normal market. 

That was the past. What about the future?  We currently have about 4.5-months inventory. This means prices should continue to appreciate at above-normal levels which most experts believe will happen for the next year. However, two things have just occurred that are pointing to the fact that we may be returning to a more normal market.

1. Listing Supply is Increasing, both existing and new construction inventory is on the rise. A past Existing Home Sales Report from the National Association of Realtors revealed that inventory has increased over the last months after months of declining inventory. At the same time, building permits are also increasing which means more new construction coming to market.

2. Ivy Zelman, who is widely respected as an industry expert, reported in her ‘Z’ Report: While we continue to expect a resumption of growth in resale transactions on the back of easing inventory in 2019 and 2020, our real-time view into the market through our Real Estate Broker Survey does suggest that buyers have grown more discerning of late and a level of “pause” has taken hold in many large housing markets. Indicative of this contacts rated buyer demand at 69 on a 0- 100 scale, still above average but down from 74 last year and representing the largest year-over-year decline in the two-year history of our survey.”

Anderson concluded, “Based on the KCM information, with supply increasing and demand waning, we may soon be back to a more normal real estate market. We will no longer be in a buyers’ market (like 2007-February 2012) or a sellers’ market (like March 2012- Today).

Prices won’t appreciate at the levels we’ve seen recently, nor will they depreciate. It will be a balanced market where prices remain steady, where buyers will be better able to afford a home, and where sellers will more easily be able to move-up or move-down to a home that better suits their current lifestyles.”