Should Potential Sanibel Buyers Hold Out for a Housing Market Crash?

With the craziness in the real estate market in Sanibel and across the country over the last three years some potential homebuyers in Sanibel and everywhere else have decided, "I'm just gonna wait until the market crashes to buy a home." 

There have been many contradicting headlines about the actual state of the real estate market and where it is headed. Some news outlets have reported that the housing market is declining while others have added that home prices have appreciated so much the only way the market could possibly be headed is for a major crash. 

The year 2020 brought a large amount of turmoil into the world which impacted the real estate market significantly. Interest rates fell lower than anyone could have ever imagined, and people hesitated to sell their homes, all while others came flooding to the market to purchase the very small amount of homes for sale in hopes to take advantage of unbelievable mortgage interest and find their dream home for less. All of this caused a perfect storm of nearly impossible buying conditions as home prices skyrocketed with demand and competition between several buyer fighting for one home got crazy. 

Last year as mortgage rates almost instantly doubled overnight, the market shifted again and buyers began to back out of buying in droves. But buyers faced a new challenge affording a home at newly appreciated prices with interest rates higher than seen in the last decade. All of this roller coaster has to mean things will correct soon and the real estate market will crash right? This has led to a growing number of home buyers holding out to purchase a home until there is a fire sale. 

Is the Market Actually Going to Crash? Should Sanibel Buyers Wait Until It Does?

Some Housing Market Statistics to Help Gain Perspective

Bankrate has a national survey of large lenders in the country. According to this survey, the average 30 yr fixed-rate mortgage came in a 7.07 on July 12 which was a slight increase from 6.95 in the week previous.

Home sales across the country rose by a meager 0.2 percent from April 2023 to May as reported by the National Association of Realtors. Numbers also show that sales have declined 20 percent year over year. 

The median home sale price in May 2023 was $396,100 which shows a 3.1 drop from the year before. 

The number of homes for sale or housing inventory as it is referred to remains low and keeps us in what is considered a seller's market. The inventory has increased to a 3-month supply but is still not up to a 5 to 6-month supply to make for a balanced market. 

As housing economists look into the current data and data from past recessions and housing market issues they feel that home prices may continue to decline but it will not be to the level that was experienced in the last housing crisis of 2007/2008. Experts believe that a big factor in the market remaining stable is that today's American homeowner is much stronger financially than the homeowners of the last recession. Back then homeowners owed more than their home was worth, today homeowners have stable credit history and a larger amount of equity in their homes. A study from Redfin in June showed that 82.4 percent of homeowners across the country have fixed-rate mortgages with interest rates below 6 percent. 

Reasons the Housing Market is Not Headed for a Crash

 There are five major reasons why housing economists and real estate experts are making a compelling argument that a housing crash is not on the horizon.

Builders were not meeting demand after the last crash

The last recession when there were several new construction homes sitting empty for months and years lead to construction companies pulling back the development of new housing. With the slowdown continuing through the current day it is still hard for builders to catch up to the pace they had before the last recession. And the supply is not meeting the demand which is one reason why homes remain at high values.

Lending standards are much tighter

One of the biggest contributing factors to the last housing crash was the fact that almost anybody could receive approval for a mortgage loan. Some people call this predatory lending practices and other people call it liar loans. During this timeframe, several mortgage lenders did not go through the rigorous lending practices they do today in vetting potential home buyers and their ability to afford and pay back the loan that they give out. Today standards are much more strict and laws have clamped down to prevent lenders from handing out money to potential buyers that are seen as a higher risk. Today's homebuyer qualifying for a mortgage has an average 765 credit score according to data from the Federal Reserve Bank of New York. Lenders are making sure that they are lending money to home buyers that are financially ready to purchase.

Inventory is low

As mentioned above the demand for homes is high and the supply is low. The National Association of Realtors reports that there is only a current three-month supply of homes for sale. This has increased from the numbers the year prior at just 1.7 months of supply. This is good news for potential buyers but it is still a sellers market. However, this has also created a bidding war just to come back to the market. As supply demand remains high a housing crash remains unlikely.

The buying demographic is different

Another factor driving demand for homes right now is that millennials are of the traditional prime age to purchase homes in their life. Millennials make up a huge group of people within the United States and this very large population of potential buyers is also helping to feed the demand for homes.

Foreclosure activity is low

In the last housing crash, foreclosures flooded the market and caused home values to plummet very quickly. Currently, there are very few foreclosures going on across the country. This mainly contributed to the freeze on filing default notices during the height of the pandemic. This push for closures to record lows during the pandemic. Many people thought that foreclosures would again flood the market as moratoriums began to lift but the increase in foreclosures has been very slight with lenders more willing to work with forbearance programs as compared to the last housing crash when lenders were quick to foreclose or short sale homes.

So should a Sanibel home buyer wait for a housing market crash to purchase a home at a much cheaper price? The answer is no. The best homebuying strategy is always to work with a trusted local real estate agent and to be financially solid. No matter the market conditions if you are a financially ready Sanibel homebuyer you will have homebuying success when you are working with the right professional on your side.

For more information on available Sanibel real estate or to talk about the possibility of purchasing a home on Sanibel Island within your personal buying parameters please contact me.