The good news for the economy is the national housing market is still setting higher and higher prices. But while nationally those numbers are looking good, most of these reports focus on only the major metro areas of the US. While it is true the markets in metropolitan cities have nearly fully recovered, the actual recovery is far more muddled. Smaller markets are taking baby steps on the road to recovery and still have a long way to go. Meanwhile, cities like San Francisco are seeing double digit growth. It’s expected take at least another eight years to for the US to reach full recovery in most places.
We know that wages drive home prices. Since the beginning of 2017 inflation and wages have stalled behind the home price growth when we look nationally. Since wage growth is behind home pricing, this signals some instability in the market. People aren’t unwise to this instability either, a new survey out from ValueInsured found that 58% of people believe the market is due for a correction. Historically speaking, there is a precedent for another price correction in the housing market. The market tends to fluctuate every 7 to 10 years, and we are currently ten years out from the last crash. We know a downturn in the market is inevitable, but it’s hard to say exactly when it will happen. This is especially true considering we are recovering from the largest real estate crash we’ve ever experienced. The last up turn lasted 17 years from 1990 to 2007, and it could very well be an indicator of a new pattern emerging in the market.
So what does this mean for the Fall housing market? Well, it means a lot more of the same we hope, and it depends greatly on where you live considering the market is wildly uneven. Over the last few years, we’ve seen the market recovery slowing down to a moderate pace. It’s very likely another downturn won’t be arriving for a few more years at least, and the pace should slow, and we don’t expect another crash as we saw in 2007 for several reasons.
The 2007 crash was unique, the circumstances behind the crash in 2006 were considered a perfect storm for financial disaster. Buyers, lenders, and builders thought up until the market sank that the home prices were going to continue rising and never stop. It’s hoped that we have learned from those mistakes and that we don’t buy homes purely on speculation thinking that the housing market will never turn on us. This alone should keep things in check this time around. However, those major metro markets are almost back to playing the same speculation game yet again with foreign investors and skyrocketing rental prices. Combine that with the loss of the Dodd-Frank Wall Street Reform and Consumer Protection Act under the current Trump administration, and you may yet have another storm brewing.