The public is worried about banks. The stock market is wobbling. Housing prices are fluctuating across the nation. Interest rates are rising. Compounding all of this, the word “recession” is being thrown around.
With all of this going on, the question I am asked again and again is if we are going to see a repeat of the brutal housing crash from 2008 and 2009.
Home buyers and sellers in Bucks County and beyond are keenly interested in how this economic turmoil could impact home values.
I have some good news: the sky isn’t falling.
There are many reasons why what happened with Wall Street and the housing market in 2008 is unlikely to happen again, and several key factors contribute to why housing values will likely remain stable for the coming years, even if there is a recession.
1. The Subprime and Predatory Mortgage Issues of the Past Aren’t Happening in the Present.
The movies “Inside Job” and “The Big Short” did a great job highlighting what went wrong with the housing and stock market crashes over a decade and a half ago. However, that was a distinct situation where the banking crisis was partly caused by predatory lending and a subsequent foreclosure crisis where the market was quickly flooded with an excess inventory of homes.
Today, much of the banking industry is under increased regulation to ensure the housing market does not experience the same system shocks it did back then.
2. There’s a Dramatic Shortage of Homes.
Another reason housing prices will likely remain stable is simple supply and demand. The COVID-19 pandemic halted many industries around the globe, disrupting supply chains, delaying construction and shutting down production. This created not just material shortages but also massive backlogs. As a result, new home construction is far behind where it should be, even with the fact that new home construction has had a large gap for over a decade.
This was exacerbated with the rush to remote work amid the Great Resignation that came with the pandemic lockdowns. Many people left the cities in favor of suburban and rural areas. Homes would vanish from the market within hours of getting listed. Some were bought for sale prices considerably over the asking price. Others would be bought sight-unseen. According to local MLS data for Bucks County, the median time for homes on the market is now less than three weeks.
According to a report from Realtor.com, the vacancy rate for homes nationwide sat at less than 1 percent at the end of 2022. That same report noted a 6.5 million home housing gap. The MLS data for Bucks County noted year-over-year drops in closed sales (-11.4 percent), houses under contract (-8.2 percent) and new listings (-12.2 percent). It will take years for the housing supply to catch up to the demand. In fact, the current rate of single-family housing construction would need to triple to catch up. Until it does, housing prices will probably not see a major drop off — even with rising interest rates — because their sheer scarcity is protecting their value.
3. The FDIC Still Protects Deposits.
There has also been chatter about whether earnest money deposits are safe. It’s a fair concern rooted in the news around Silicon Valley Bank, which saw an intervention from the federal government. However, Silicon Valley Bank was extremely niche and vertically focused on one type of client: the tech industry. Tech companies have been scaling back dramatically with significant layoffs making headlines. When that “vertical” struggles, the banks focused on it will struggle as well.
Ultimately, the average person has nothing to worry about when it comes to their bank account, most of which are in larger national banks. According to the most recent Federal Reserve Survey of Consumer Finances, the average bank account has less than $10,000 in it — far less than the FDIC insured amount of $250,000 per account.
4. The Housing Market is Evolving — Again.
Homeowners’ unwillingness to sell in a market with high interest rates is also having an impact on housing prices, even if the market is favorable to sellers. More and more single-family or multi-family homes are being kept as rental properties, which creates more rental options, but not nearly enough to keep rental prices from rising based on the extreme demand.
According to the most available MLS data for Bucks County, in February 2019 there were 390 available rental units at an average monthly rental cost of $2,500. In February 2023 that availability fell to 240 rental units, with rents averaging at $2,750.
Investor portfolios are changing to reflect new market trends, and properties and homes are now being purchased as investments. Even corporate entities are buying up properties now as rentals for additional revenue streams. This also adds to the shortage of available homes.
Ultimately, while the housing market is healthy, there are a few caveats buyers and sellers should keep in mind. The highly aggressive seller’s market of the past few years will likely cool, even if we see bidding wars continue for another year or so. If prices do fall, it will likely be a minor calming of property values in highly desirable areas rather than a large swing or decline in those values.
At the same time, buyers will need to remain flexible and willing to adjust their expectations. Bidding wars are slowing down, but they are not gone, and the rate at which housing inventory enters and then exits the market is still very fast.
What does all this mean for us here in Bucks County?
Bucks County remains a desirable real estate market for both homebuyers and investors. The region’s bucolic neighborhoods and robust business districts, as well as our convenient access to both Philadelphia and New York City continue to be a draw for buyers, boosting our values and keeping Realtors busy. This spring market, many newly listed homes in our area are back off the market in a couple of days, under contract with solid buyers paying close to, if not more than asking.
The housing market always ebbs and flows — but like all market forces, it will reach a point of market equilibrium. That equilibrium will slow additional market inventory and keep prices stable. As long as that’s the case, the headlines and fear about another 2008 style crash is unwarranted.
Dave Marcolla is president of Newtown Borough-based Marcolla Realty.
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