The Housing Market Didn’t Crash. It Changed.

For the last few years, I’ve heard some version of the same question from buyers and sellers: “When is the housing market going to crash?”

Leo Pareja, one of the more interesting leaders in real estate right now, has a different take. He believes the collapse people are waiting for already happened.

At eXp Con recently, Pareja said the housing market has already moved into a roughly 4-million-existing-home-sales cycle. His point was that years of extremely low interest rates pulled a lot of future demand forward. When rates increased, transactions dropped dramatically.

The market changed. Buyers and sellers are still trying to figure out what the new normal looks like.

Pareja knows something about changing markets.

At just 23 years old, he owned 14 rental properties and had a net worth of about $5 million. Eight months later, during the 2008 financial crisis, his net worth had fallen to negative $1 million. He was negotiating with banks to give properties back and even called BMW to come get his car.

Then he rebuilt.

By age 28, Pareja had become the number-one agent at Keller Williams worldwide, a goal he had chased for eight years. Interestingly, reaching number one didn’t give him the feeling he expected. A mentor challenged him the following year to stop defining himself by that one accomplishment and get good at something else. That lesson eventually pushed him toward building businesses, technology and leadership roles beyond selling houses.

I think there’s a pretty good lesson there for the housing market too.

We can’t keep using the strategies or assumptions that worked five years ago.

Here are four numbers that help explain where we are.

246 of the 300 largest U.S. metro areas saw home prices increase year over year. National appreciation is much slower, but the idea that home values are falling everywhere simply isn’t accurate.

Mortgage rates have averaged roughly 7.7% since 1971. Rates above 7% feel extremely high after living through the 3% mortgage era, but historically they are not unusual. The problem is that buyers are combining today’s rates with much higher home prices, which absolutely creates an affordability challenge.

More homeowners now have mortgage rates above 6% than below 3%. That is a big change. About 21.2% of mortgaged homeowners have a rate of 6% or higher compared with about 20% below 3%. Only 16% of homeowners surveyed by Redfin who planned to stay put said protecting their low mortgage rate was the reason. The rate-lock effect that supposedly would keep everyone from moving forever is slowly breaking.

And then there is the rent-versus-own conversation.

On a median-priced home, a renter may spend roughly $24,000 a year in rent, while a buyer can build roughly $13,000 in principal during the first year depending on the price, down payment and mortgage. That doesn’t automatically mean everyone should buy. Homeownership also comes with taxes, insurance, repairs and maintenance. But part of the conversation should be what happens to the money you spend each month, not just the interest rate.

We’re also dealing with what has been called a “K-shaped” housing market. Buyers with cash, substantial equity or stronger incomes are often still moving, while buyers who rely more heavily on financing are feeling the affordability squeeze much more.

That’s why national headlines only tell part of the story.

A $400,000 home in Gwinnett can behave completely differently from a $1 million home. New construction may compete differently from resale. One neighborhood can have multiple offers while another five miles away has listings sitting for months.

People also move because life keeps happening. They get married, have kids, change jobs, retire, inherit property, get divorced or simply need something different.

So I agree with Pareja on this part.

We need to stop waiting for the old market to come back.

This is the market we have, and understanding how to work within it matters a lot more than waiting for everything to look like 2021 again.

Call Jamie to find out about his personalized approach to buying or selling your home at 404-483-7816

Sources: HousingWire, “Leo Pareja: The housing collapse already happened”; CNN/Newsource coverage on the K-shaped housing market; Inc., profile of Leo Pareja and his career story; Redfin mortgage-rate distribution research; Freddie Mac historical mortgage-rate data; ResiClub housing market analysis.