Real Estate Crash Will Be "Different This Time" . . . Right??

[Account Closed]

A closer look at the 40 housing markets at risk of a 15% to 20% home price decline

Every quarter, Moody’s Analytics assesses whether local fundamentals, including local income levels, can support local home prices. At the latest reading, Moody’s Analytics finds 183 of the nation’s 413 largest regional housing markets are “overvalued” by more than 25%. In some of those overvalued markets, Zandi says, buyers and sellers can expect to watch home prices fall by 5% to 10% amid this housing correction.

However, in America’s most overvalued housing markets, Zandi predicts a 15% to 20% home price decline.

Earlier this month, published a list of the 40 regional housing markets most likely to see a 15% to 20% home price decline amid a recession. At the top of the list, Zandi says, are Boise; Colorado Springs; Las Vegas; Coeur d’Alene, Idaho; Tampa; Atlanta GA; Fort Collins, Colo.; Sherman, Texas; Jacksonville; and Idaho Falls, Idaho.

Renters in high-cost cities like Seattle WA and Boston MA simply couldn’t pass up the affordability of markets like Austin and Tampa. The ensuing pandemic housing boom saw markets like Austin and Tampa become overvalued by 61% and 45%, respectively.

In places like Austin TX, which was overvalued by just 7% in the first quarter of 2006, this feels very new. In other places, it looks eerily similar to 2006. Look no farther than Las Vegas NV and Phoenix AZ, which Moody’s Analytics rates as being overvalued by 53% and 54% in the first quarter of 2006. Now, Phoenix and Las Vegas are overvalued by 51% and 54%. That’s not something that real estate professionals in those cities—two of the hardest-hit in the 2008 housing bust—want to hear.

[Kathleen McDowell]

Hi Mike.  As an investor, you're wise to be keeping an eye on home price forecasts. As a REALTOR and investor in Phoenix. I can tell you, prices are still increasing, and thanks to record low interest rates for the last few years, many people's payments are lower than they were previously. Rents are increasing, which will be challenging for folks. In these instances, I tell my investor clients to focus more on A and B neighborhoods.  These folks tend to have salary increases along with the cost of living. This is one way to manage your investment risk.

It's important to digest balanced data as when things change, the media tends to use eye catching headlines meant to strike fear in readers. Keep in mind the data shows that there are NO similarities between this market and 2007. At most, in Phoenix we are seeing cooling, with homes no longer selling in a few days, but instead a few weeks - which is perfectly normal.  30-45 days is a normal sales cycle. What we experienced in the last few years was not. We're simply seeing a return to normalcy.

Supply is low now not high like it was 2007. We don't anticipate this changing for a while as new home build are decades behind and in Phoenix in particular, we are still seeing strong inbound migration.

Credit quality is good, thanks to tightened lending standards.

Foreclosures are low now, vs high in 2007. 

Homes are more affordable than they were in 2007, thanks to record low rates.

I have reviewed a lot of data and believe the BOTTOM line is:

Homes are more affordable today than in 2007. 

We are in a cooling market, but are NOT headed for a crash. 

Although interest rates are on the rise, they are still not as high as they were in the 80s, 90s or 20s. 

If you hold your real estate for 10 years or more, historically you would have always made money.