Housing Market 2018 VS 2008
Many folks are wondering if there is a comparison between the current real estate housing market and the market just prior to the "boom and bust" ten years ago. Looking at just price appreciation alone, many fear that we are on a similar path, advancing quickly toward another market downturn.
However, looking deeper into the data, there is a defining difference between the two market periods. During the last decade, the demand for real estate was artificially created by very relaxed lending standards combined with a large amount of inventory added to the market to meet the demand. Below is a chart illustrating the amount of inventory of homes for sale just prior to the market crash in 2008.
During a normal real estate market, there is approximately a six month supply of housing inventory. As illustrated in the above chart, the inventory level spiked to over an eleven months supply just before the housing crisis. When loose lending standards ceased and demand fizzled, the result was an oversupply of properties for sale which in turn caused prices to decrease. There was too much inventory with little demand.
Today Is completely different
Some folks believe our current low mortgage rate environment has created an artificial demand in the real estate market. Their concern is rising interest rates may cause demand to slow up, which is a valid concern.
However, the chart below illustrates the current monthly supply of inventory is considerably lower than the norm of six months.
Should the current real estate market begin to soften, unlike in 2008, there isn't an oversupply of inventory to cause homes to come tumbling down. Instead, should demand soften, housing will adjust to a normal market of approximately six months inventory combined with historic levels of 3.6 annual appreciation.
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Disclaimer:The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. John Sabia PA and Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. John Sabia PA and Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.