The demand for home remodels is expected to remain strong—even as the COVID-19 pandemic begins to ease as vaccinations rise and people are no longer trapped inside their abodes obsessing over all
Home Prices Have Shot Up Way More Than You Thought Since The Recession
Dated: July 23 2019
Quite a bit has changed since the housing bubble burst and the world plunged into a bleak recession. Rampant layoffs have been replaced by a booming economy and hiring sprees. A housing market pocked by foreclosures and abandoned construction sites is now on fire.
But the postcrash price growth might actually be higher than most thought. Home prices shot up a cumulative 50% over the past decade, from June 2009 through May 2019, according to a recent report from real estate information provider CoreLogic. Meanwhile, the cost to rent a single-family home surged 33% over the same period.
Wages also rose over the past decade, but not nearly that much.
"Home prices are going up faster than incomes, and that's led to some of the affordability challenges that we see in the market," says Chief Economist Danielle Hale of realtor.com®. "Homes were basically on sale during the recession. ... [Today's high prices] create a bigger hurdle to get into the housing market."
The country has now seen more than 120 straight months of economic expansion.
“During the last nine years, the expansion has created more than 20 million jobs, raised family incomes, and rebuilt consumer confidence,” CoreLogic's Chief Economist Frank Nothaft said in a statement. Low mortgage rates under 5% have also given the housing market a boost.
"These economic forces have driven a recovery in home sales, construction, prices, and home equity wealth," he said.
From foreclosures to a home equity windfall
The foreclosure crisis also largely reversed itself. At the start of 2010, more than a quarter of all homes with mortgages in America—25.9%—were underwater. This led to a rash of folks losing their properties and empty homes plaguing neighborhoods across the nation. About 2.7 million homeowner households lost their residences from the third quarter of 2009 and the fourth quarter of 2012.
The number of renters shot up by 12.9 million during the same time period. And all that demand in turn has helped to push rents higher. And higher still.
But fast-forward to early 2019 and just 4.1% of abodes are now underwater.
And with more people financially able to get into the housing market, that high demand coupled with a dearth of properties for sale has pushed prices, and therefore home equity, up.
Home equity hit $15.8 trillion in the first quarter of this year. That's a 159% increase compared with just $6.1 trillion a decade earlier.
"We have years of home price growth leaving borrowers with record levels of home equity," says Molly Boesel, principal economist at CoreLogic. "So if they're in a situation where they can't pay their mortgage, they would just sell. So they won't wind up in default."
To put that into perspective, the average homeowner with a mortgage had approximately $75,000 in equity in the beginning of 2010. Nine years later, they had about $171,000 in equity.
"That's a huge change," says Hale. "It's peace of mind; it's a nest egg people can tap into ... it's potentially access to savings that exist in their home."
Are we heading for another recession?
Many fear the good times can't last forever. This is the longest economic expansion in U.S. history, after all. There are fears of inflation and trade wars. But the jury is still out on what will happen.
"A recession will come at some point," says Boesel. "But it doesn't seem imminent this year."
But bubble watchers worry that home flipping—one of the factors that got us into a recession the last time around—is up again. Through the recovery, investors have increasingly scooped up properties, rehabbed them, and sold them for a profit.
The two-year flipping rate hit an all-time high of 11.4% in the first quarter of last year, according to the report. That's compared with 4.9% in the third quarter of 2010.
But unlike in the last downturn, overbuilding, subprime mortgages, and easy credit are mostly a thing of the past. Last time lenders made mortgages to underqualified—and often uninformed—borrowers.
In the wake of the crisis, lending standards have been tightened. Only the strongest candidates in good financial shape can get a loan. And there isn't nearly enough new construction to satiate demand.
"Everyone likes to say this time is different. But this time really isdifferent," says Hale. "Regardless of how the economy performs, the housing market looks like it's on good footing. There's a large group of young people at the age where they're going to be buying houses. And at least so far, jobs are plentiful and that bodes well for people's ability to buy going forward."
For Mark Ross, founder of Ross NW Real Estate and professional real estate broker, real estate has always been the career of choice. During his 25+ years in the industry, Mark has gained experience in....