Posted by Matt Curtis on Monday, May 23rd, 2022 4:28pm.
Are we heading for a real estate crash in 2022? Responses and comments I've received have many asking if home values have finally peaked and if home values will start to crash in 2022. Many people are fearful they will overpay, but I believe that 'fear' stands for 'False Evidence Appearing Real' and 90% of the things that we fear actually never happen. I like to look at the data and make an informed decision. So here's the data on this question.
Data shows we have an extreme supply imbalance, there is currently a 5.5 million home deficit and our supply has shrunk 75% in the last five years. Also, 40% of the U.S. dollars have been printed in the last two years. So there's a lot of cash in this market that's pushing up demand, especially if investors are purchasing one in four homes nationally. There's also been a significant drop in first time homebuyers purchasing due to a lack of supply. It's down from 45% to 27% since 2010, which is creating increased pent up demand.
The buyers of this market are highly qualified. Average loan value ratios have plummeted, down from 85% to 55%. During the last recession you had borrowers with teaser interest rates, negative amortizations, and unqualified buyers buying speculative property that did not cash flow and they couldn't afford. Also, foreclosure rates are an all time low and homeowner equity is at a record $9.9 trillion; crashes typically happen when borrowers are upside down on their mortgages.
The fundamentals of real estate and the purchasers of real estate are still very strong. This is unlikely to change until the supply of real estate is corrected in this country.