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Some are attempting to compare the current housing market to the market leading up to the “boom and bust” that we experienced a decade ago. They look at price appreciation and conclude that we are on a similar trajectory, speeding toward another housing crisis.
However, there is a major difference between the two markets. Last decade, while demand was being artificially created by extremely loose lending standards, a tremendous amount of inventory was coming to the market to satisfy that demand. Below is a graph of the inventory of homes available for sale leading up to the 2008 crash.
A normal market should have approximately 6 months supply of housing inventory. As we can see, that number jumped to over 11 months supply leading up to the housing crisis. When questionable mortgage practices ceased, and demand dried up, there was a glut of inventory on the market which caused prices to drop as there was too much supply and not enough demand.
Today is radically different!
There are those who believe that low mortgage rates have created an artificial demand in the current market. They fear that if mortgage rates continue to rise, some of the current demand will dry up (which is a possibility).
However, if we look at supply again, we can see that the current supply of homes is well below the norm of 6 months.
We will not have a glut of inventory like we did back in 2008 and home values won’t come tumbling down. Instead, if demand weakens, we will return to a normal market (approximately a 6-month supply) with historic levels of appreciation (3.6% annually).
It should come as no surprise that buying a home in a good school district is important to homebuyers. According to a report from Realtor.com, 86% of 18-34 year-olds and 84% of those aged 35-54 indicated that their home search areas were defined by school district boundaries.
What is surprising, however, is that 78% of recent homebuyers sacrificed features from their “must-have” lists in order to find homes within their dream school districts.
The top feature sacrificed was a garage at 19%, followed closely by a large backyard, an updated kitchen, the desired number of bedrooms, and an outdoor living area. The full results are shown in the graph below.
Buyers are attracted to schools with high test scores, accelerated academic programs, art and music programs, diversity, and before and after-school programs.
With a limited number of homes available to buy in today’s real estate market, competition is fierce for homes in good school districts. Danielle Hale, Chief Economist for Realtor.com, explained further,
“Most buyers understand that they may not be able to find a home that covers every single item on their wish list, but our survey shows that school districts are an area where many buyers aren’t willing to compromise.
For many buyers and not just buyers with children, ‘location, location, location,’ means ‘schools, schools, schools.’” (emphasis added)
For buyers across the country, the quality of their children’s (or future children’s) education ranks highest on their must-have lists. Before you start the search for your next home, let’s get together to discuss the market conditions in our area.