Updates on the shifting real estate market.

We’re going to keep on this topic of the shift in the market, and I’m going to be giving you an update on a couple of things. We’re going to do a deep dive into foreclosures, and give you some updates on that as we go through.

We’re also going to talk about the existing home sales report that came out last week, down for the fifth month in a row — that was the big headline. Down to a seasonally adjusted average of 5.1 million sales. Average days on market in June — 14 days. It’s very interesting.

Their average sales price in the country, $416,000. That is the 124 straight months of price increases in this country.

So many people are publishing videos saying this market is going to crash. And I want to sort of break that down from inventory, from new builds, and then we’ll go into foreclosures, because there are really three ways a home can come to market, right? An existing home, someone puts it on the market and sells it. A new builder’s building homes — we get inventory that way. And then there’s the third way that’s distressed sales that come to market.

So I’m going to kind of break that down, give you a little bit of perspective here.

There still aren’t enough homes for sale in this county. If we look at the inventory across the country, at the end of June, 1.2 million units were on the market according to NAR, who looked at existing inventory plus pending inventory. I wouldn’t really call that on the market if it’s pending. Most of those sales are going through, obviously, but they talk about that as total unsold inventory now sits at a three month supply, and I certainly expect that to rise.

But let’s put that in perspective right now — three months supply. Last year, the average was 2.3 months, 3.1 months in 2020. And then if you look back in the rearview mirror — this graphic does that — going all the way back to 99, you see sort of the average in inventory and the spikes up during the housing crisis in red, there we were up over eight months of inventory in the real estate market. But the bottom line is there still isn’t enough inventory for those that want to buy.

It’s no doubt that sales are slowing due to the rise in the cost of financing a home purchase, but we need more homes on the market.

• Building permits at a rate of 1.6 million.
• As of June starts 1.5 million
• Under construction, 1.5 million
• Housing units completed, seasonally adjusted at 1.3 million.

What’s interesting about this, it starts going down in May and June. Clearly we will complete more than a million homes this year. And so we’ll see that we’ve said the last 14 years we haven’t built the homes that we needed.

Building is coming back, but certainly not enough builds to fix the deficit of millions of homes that we are under supplied in the market by. So, crash is not coming from new builds. Now, the only thing that leaves is, would there be a scenario where all of these distressed properties would come to market?

So I want to break that down to you and give you exactly what the facts are about that, because I’ve seen things, I’m seeing people say “foreclosed properties are up 700% this month over last year, and we’re coming into an area where we’re going to see all these foreclosures.”

A couple of things that I would remind you about. First of all, lending standards are still under control. Back in the housing crisis, if you look at this graphic — this is from the Mortgage Credit Availability Index — the higher the index, the easier it is to get a loan. And what did we see back in the bubble? Very easy to get a loan. And lending standards have since adjusted, really from about 2008, right after the crisis, to today.

Even during the pandemic, lending standards got tighter. Why is that important? Well, what brought the 2008 crisis was inflated demand through lower standards to lend. So it’s important to remember that. And if you think about that, when you have inflated demand, that led to the crisis and then the standard shifted, and here’s the result of that shift —

Foreclosure activity has been on the way down. This is what happens when you start to have a tighter lending standard in the housing market. When you have a better qualified borrower, less default — and we’ve certainly seen that. 2020 and 2021 were anomalies in the market because of the moratorium on foreclosures. We’re coming out of that. So expect to see more foreclosures as we come out of that moratorium.

If you want to compare the first half of this year to the first half of other years going all the way back to 2008, check this out. This is a look at first half foreclosure activity by year. And you see right there, the first half of this year, almost 165,000 foreclosures, about the same as 2020, not quite where we were, almost 300,000, a little bit more than half in 2019, well below 2018.

But I got to tell you, with the decline in foreclosures that we’ve seen over the last nine years due to a better qualified borrower, we don’t have the scenario that we had in 2008 where we had a borrower that really didn’t have to qualify and then got foreclosed on.

If we go back to that initial statement I made — existing homes to come to market, new homes to come to market, and then foreclosures — there just isn’t a case to be made for foreclosures.

This is the latest look — as of June 30th of this year, going back two years to the start of the pandemic, and what happened to those coming out of foreclosure? Well, if we break this down, in this green area of the pie graph, 36.4 were paid in full when they came out of forbearance. They 1) made their monthly payments, 2) they paid their loan off, or 3) they brought what was past due, they brought it current.

The second portion in blue there, 45%, worked out a repayment plan with their bank. They either went through a rate and term refinance or modification, or they tacked it on the back end and said, “hey, when you sell the home, you’ll just pay off the second.”

18% are still in trouble — they either don’t have a loss mitigation plan or they’re already in a short sale, deed and lieu, things like that.

The latest numbers are about 400,000 people in forbearance right now in this program, but still not enough inventory right there. If every one of them came on the market tomorrow, it wouldn’t cause a housing market crash (they’d be snapped up pretty quickly).

But the bottom line still remains that if somebody had to sell today, they have options. They have equity to the rise in prices over the last couple of years, and they can get out of that situation, where in 2008 they couldn’t. They literally owed more on the home than it was worth, and they walked away.

But four out of five people that went through the Pandemic and took advantage of forbearance walked out whole, either paying it off or going through a workout with their bank.

So certainly, distressed properties are coming to market. I’m not saying that people won’t be affected by the slowdown in the economy. But not a case to be made for this mass amount of foreclosures across the country.

The bottom line with inventory right now — we’re still in a seller’s market of inventory of homes right now. We currently have three months of inventory. A neutral market being around six, seven months of inventory in the market — still well below that in inventory across the country.