Though many are worried about another potential market crash happening in 2017, the numbers say otherwise.
Is our market headed for another crash in 2017? There are six different factors we must look at along with the statistics they reveal to answer that question:
- Number of months of unsold inventory
- The number of trustee sales
- The amount of new home construction
- The sales of existing homes
- The unemployment rate
- Affordability of homes
Let’s start with affordability. Affordability is based on the standard 20% down payment at the median home price, which is $435,000 here in California. At the time of the 1989 crash, our affordability index was at 17%. In 2006, it was at 11%. Right now, our affordability index sits at at 30%.
As far as the number of months of unsold inventory goes—or however many months it takes to sell a home—for the last two years we’ve been hovering around two months. In 2015, the average days on market was 61 days. In 2016, it was 58 days. At the beginning of this year, we had 1.5 months of unsold inventory. From 1989 to 1991, the number of months of unsold inventory jumped from 5 months to 13 months. From 2005 to 2008, it jumped from 2.5 months to nine months. As you can see, in contrast to these last two eras, our inventory is decreasing—not increasing.
The number of trustee sales has to increase drastically to produce a downturn. From 1989 to 1992, there was a 400% increase in the number of trustee sales. From 2006 to 2008, there was a 1,600% increase. From 2015 to 2016, the number of trustee sales decreased 20%.
New home construction is always a good barometer for our market. We need new home construction—not excessively, but intuitively. This is because it creates more jobs and helps drive our economy. From 1989 to 1991, the number of new home construction units decreased from 161,000 to 77,000. From 2005 to 2008, the number of units decreased from 155,000 to 33,000. Right now, we have roughly 50,000 units being built in California. The number of permit pullouts for new build construction has remained steady at around 40,000 the last few years, which is the lowest it’s been the last 40 years.
What about the sales of existing homes? Is that number declining or not? In 2015 and 2016, our sales of existing homes stayed flat. Prices have increased somewhat, but the number of sales has stayed flat. From 1989 to 1991, the number of homes sold in California decreased from 423,000 to 330,000. From 2005 to 2007, it decreased from 610,000 to 350,000. For the last five or six years, we’ve been hovering around 400,000 units being sold.
Lastly, let’s examine the unemployment rate. From 1989 to 1991, the unemployment rate rose from 5% to 8.4%. In 2006, it jumped from 4.9% to 9.3%. Right now, our unemployment rate is 4.8%
"You will not see a market crash in 2017 or 2018."
Based on these factors and the statistics they reveal, you will not see a market crash in 2017 or 2018. You might see an adjustment, but nothing crazy. You can expect a 4% price appreciation, and we’re still in a good market for rentals because the homeownership rate will definitely not increase. Right now we’re at 63%, and we’re predicted to drop another few percentage points in the next 10 years.
If you have any questions about our market, please don’t hesitate to call me. I’d love to have a conversation with you!