Why The Real Estate Market WON’T Collapse

Is the market in a bubble situation? Is the market about ready to collapse?

Some people say that they're waiting for the market to collapse.

Well, that's not going to happen.

Here's the number one reason why:

When we look at the last market collapse that we had, which was 2008 and is still fresh in everybody's memory, it was caused by credit running amuck.

Credit was being given to people that shouldn't have been able to get a loan. In other words, there was a credit issue there.

People were getting liar loans and no doc loans. So the credit markets were out of control. They were bundling these junk mortgages and selling them on the stock market as derivatives. When that collapsed, it caused Lehman brothers and all these others to start collapsing, which caused the massive 2008 collapse in the marketplace.

Are we in that same situation today?

Absolutely not! Nothing compares to that.

In fact, right now, we have is super strict lending standards — stricter than we've seen in decades.

And because of that, borrowers have to get their ducks in a row to get a mortgage. Also, lenders can't choose their appraiser. They have to choose their pool. And that pool of appraisers isn't chosen by them. So there's no direct relationship with the lender to the appraiser.

And then last, which is super important, is the fact that this market is powered by supply and demand, which is what all markets should be powered by.

Right now, we have a little less than three months of supply in the marketplace. A healthy market is six months of supply in the real estate business.

In the Great Recession, when we were entering into October 2008, we had 11 months of supply coming into that market!

We were way oversupplied. That's another reason why we had that market crash.

Today, we have incredible strict standards. We have no relationship with the lender to the appraiser. And we're powered by supply versus demand.

What does that mean going forward?

It means: yes, prices will probably moderate as more supply comes into the market, but we're not anticipating any kind of crash. And in fact, all the major players are pointing to the fact that they think home prices are going to continue to rise well into 2022 — with a moderation. So more like a 4%-5%-6% appreciation rate.

All this is good news for the market. We want to see a boring level appreciation rate. We don't want to see double digits. That's not healthy for the market.

So take that message out to the marketplace. Talk to your clients about it, educate people in your marketplace, and they will appreciate it. Plus, they'll view you as the expert in the market.

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