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What Causes Real Estate Prices to Fall?

Randal Engelmann & Erik Gould

We are Randal Engelmann and Erik Gould, partners in providing exceptional customer service...

We are Randal Engelmann and Erik Gould, partners in providing exceptional customer service...

Mar 26 5 minutes read

Randal and Erik discuss the four reasons that real estate prices change.


Randal:

What causes housing prices to fall? Stay tuned and we'll break that down. We're certainly hearing a lot of people as we're dealing with quarantine, as we're dealing with a slowing of the economy, as we're dealing with all the changing economies, we're really hearing the question, what causes housing prices to fall and will housing prices fall? So let's break that down a little bit. Really one of the biggest factors that affects home values and makes a difference in whether they're rising and falling, is inventory levels and absorption rates.

Erik:

Economics 101, supply and demand.

Randal:

Supply and demand.

Erik:

So when you talk about inventory levels, that is supply.

Randal:

And we certainly seen a very short amount of supply over the last few years.

Erik:

And we're still there.

Randal:

And we're seeing the next factor that affects it, is of course buyer demand. And buyer demand right now is high, even at the beginning of a crisis that we're facing. Buyer demand is incredibly high. Interest rates, number three.

Erik:

Yep. And that helps create demand. So right now we are still seeing really unprecedented low interest rates.

Randal:

Just record low interest rates.

Erik:

And we're seeing lots of cash available. It's still easy for buyers to get mortgages, relatively easy. So it actually creates a still high demand.

Randal:

Stability in the market makes a big difference too and what we're seeing nationwide is people on average have 50% equity in their homes. How does this differ from the last downturn of 2007, 2008? The average equity was near five and 10%, people were borrowing 100% of the value to buy a home. People today have about 50% equity in their home, so we're not going to be entering a time where people are having fire sales because they can't make their payments. They can put them on the market, they might get less than they want for them, but they're still going to be able to sell them without having to go into foreclosure, short sale, that kind of thing.

Erik:

Yeah. I think the number is something like, over 50% of the households in America have over 50% equity in their houses. Which is huge. They're not underwater. If you guys remember that term from 2008, 2009.

Randal:

And when we're talking about buyer demand absorption rates and inventory and equity, one of the things that's really affecting today's market and I think one point that people really don't know about out there is the amount of time people are living in their homes. It's up almost 50%. it was typical that people lived in their homes six to seven years and moved on to the next place. The nationwide average right now is 10 to 11 years. That removes 40% of typical inventory from our market.

Erik:

Yeah. I think it's even going up.

Randal:

Yes. So if you're a buyer waiting on the fence for property values to fall, it's probably not going to happen.

Erik:

Not anytime soon.

Randal:

Yep. Not anytime soon. So there is stability in our marketplace. So big takeaway, big stability, low interest rates. It's still a good time to buy when the market opens back up again and you can really count on the values being consistent.

Erik:

And we'll be here for you.

Randal:

Thanks for watching everybody, until next time.

Erik:

Stay tuned, stay focused.

Randal:

And stay focused. Oh my God, the housing prices are falling.

Erik:

They're falling.

Randal:

They're falling.



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