Is COVID19 Going To Cause Another Housing Crash Like We Saw In 2009

Dated: May 21 2020

Views: 831

Is COVID-19 going to cause another housing crash like we saw in 2009?   Image title

No. Housing, like any other market, is driven by the law of supply and demand. Simply put, how many homes are for sale - and how many buyers want to buy them? Let’s compare 2009 to today. In April of 2009 the Charleston market saw a demand of 698 sales, with a supply of 16,068 homes on the market for sale. That meant that in 2009 our market had 23.2 months’ worth of inventory. For reference, a balanced and healthy market is defined as about 6 months’ of inventory. Less than six months of inventory creates a sellers’ market with rising prices. More than six months of inventory creates a buyers’ market with potentially falling prices. Fast forward to April of 2020. Admittedly, sales were down as a result of COVID-19. Nonetheless, the Charleston market still saw 1,216 pending sales with only 7,632 homes on the market for sale. Those numbers equal a market wide absorption rate of 6.3 months, creating a very balanced market. 

Isn’t inventory going to balloon as unemployment grows or as temporary layoffs become more permanent? 

Actually no, or at least certainly not like we have seen before. In 2009, foreclosures spiked as the underlying economy deteriorated. Foreclosures and short sales resulted in lots of added inventory at distressed prices, which led to a downward cycle. This year, the underlying economy was strong, prior to COVID-19.    As a result, today well-qualified mortgage holders are sitting on a record amount of home equity. Additionally, government programs are providing homeowners impacted by COVID-19 the ability to enter into forbearance, allowing them to not make payments for up to a year. These programs will stop a spike in foreclosures and allow sellers who need to sell the ability to do so without flooding the market. Digging deeper, we can see that the 6.3 months of available inventory represents the homes for sale across the entire market, while individual markets can vary greatly. For example, large sections of Dorchester County, including areas in Summerville, North Charleston, Ladson, and Goose Creek, have under 1.7 months of inventory. Whereas, areas like West of the Ashley, Daniel Island, and Mt. Pleasant are under 4 months of inventory. 

Is now a good time to sell my house? 

Yes. While the number of sales, a/k/a the demand, did drop off in April as some buyers stayed home, so did the number of homes for sale, a/k/a the supply, as many sellers decided to wait to list their home. In fact, while sales for the year are only down 1%, current inventory levels are down 12% over last year, which offset some of the short term drop in sales we saw in April. Moreover, once things started to reopen, pent up buyer demand came roaring back in May. This demand was further fueled by tight inventory and historically low interest rates, which improved housing affordability. In fact, the first two weeks of May set two successive records for the highest number of pending contracts ever in our market. 

Is now a good time to buy a house?  Image title

Yes. Okay, I know what you are thinking, there is no way it can be both a good time to sell and a good time to buy. That is a fair point, but stick with me. A seller is usually looking to get the highest price possible for their home. With low levels of inventory in most markets and demand still strong, prices have continued to appreciate for sellers. However, a buyer, while they do not want to pay any more than they have to, is more interested in cost versus price. At the end of the day, a buyer is focused on what their monthly payment is going to be more than the actual cost of the home. Therefore, given that the vast majority of buyers have a home mortgage, historically low interest rates, pushed even lower as a result of COVID-19, have resulted in lower payments for buyers, even as prices continue to increase for sellers. For example, a buyer who purchased a $300,000 house in 2009 with a 2009 mortgage rate of 5.5% would spend, assuming a 5% down payment, $1,618 per month on principle and interest. Today, a $360,000 house, at today’s rates of 3.25%, would cost $1,488 per month. The payment is actually 8% less each month even though the “sticker price” of the house is 20% more. 

Of course, no one can predict the future and everyone’s individual situation is unique.

Our goal is to help provide you the facts and some explanation of what is going on in the housing market so that, with the guidance of  Real Estate agent, you can make the decision best for you.   Could you use guidance on making a Real Estate Decision today?  Call, email or text me at (843) 276-6587 - when you are ready to buy, sell, invest or rent I would like to help you.

Blog author image

Blair Halford

Blair Halford is a Charleston native, and having grown up here and attended Porter-Gaud and the College of Charleston he has appreciation for the Lowcountry lifestyle. His extensive knowledge of the a....

Latest Blog Posts

How To Win In A Multiple Offer Situation

After months of searching, you’ve finally found your dream home. It has a spacious yard, a gorgeous kitchen and living room, and yes, even a walk-in closet in the master bedroom. But 

Read More

Is COVID19 Going To Cause Another Housing Crash Like We Saw In 2009

Is COVID-19 going to cause another housing crash like we saw in 2009?   No. Housing, like any other market, is driven by the law of supply and demand. Simply put, how many homes are

Read More

Buyers And Sellers In A Post Covid19 World

Topic: Here's How Home Buyers and Sellers Can Stay Proactive & Position Themselves for a Post COVID-19--------------------------------------------------------------------------------------------

Read More


#OPENHOUSECHARLESTONHere is a list of all Open Houses in the Metro Charleston area (tri-counties) this weekend. Feel free to check out our Featured home too! Be Sure to consult with your

Read More