Lead Gen Lessons: GFC vs Today

Real Estate Sales: GFC vs Today

Several folks I’ve talked with recently, especially at Inman said that rates were to blame for the decline of lead gen and related reduction in home sales. But I think it’s a bit more nuanced than that. For many of us in housing,  the memories of the Great Financial Crisis (GFC) still linger, when 10 Million families lost their homes to foreclosure and we are left wondering how the current interest rate adjustments have/might affect home sales in comparison to that tumultuous period.
While not an economist, I wanted to explore some of the intricacies of the Fed’s interest rate hikes and their potential effects on future home sales, drawing parallels and distinctions from the GFC from my data nerd viewpoint.

A Nonlinear Balance

First the basics: Interest rates play a pivotal role in determining the affordability of mortgages and subsequently influence the demand for homes. When the Federal Reserve raises interest rates, borrowing becomes more expensive, leading to higher mortgage rates. This, in turn, makes owning a home more expensive, discourages potential homebuyers from entering the market, reducing the overall demand for homes. However, the relationship between interest rates and home sales isn’t linear; other economic factors, such as job growth, wage trends, consumer confidence, and the average price per listing also contribute to the equation.

Today vs GFC
Today, the average SFR price per listing is $450,000, up $50,000 y/y (source Altos Research). But while list price is a good indicator – The sales price shows reality – and currently it’s lower than the  listing price (post negotiations and timing in a cooling market) and currently $416k vs $450k y/y (Source FRED) for Q2 (older data).

From the Bubble to the GFC, home prices dropped 19% over a two year period (8 quarters) from Q1 2007 to Q1 2009. From the Covid Bubble to today, prices have dropped 14% over only two quarters. (natl avgs) But still, Yowza.

Interest rates then vs now are also very odd.  Rates were at historic lows during the bubble.  In Y2K (for you youngsters, that stands for The Year Two Thousand.  See Also: conan) Anyway, Rates at this time were a full 2% lower than Y2K 6+ years prior. 

Rates would continue to drop, bottoming out at nearly 2.5% in January of 2021, before the Fed took action to slow the rapid inflation (ironically also likely caused by the govt printing free money) With rates topping out over 7% at the end of last year.

Inventory Status
Today we have an inventory shortage with 11% fewer properties for sale this Aug, than last year and historically, we are right about at the peak of yearly inventory. Unemployment climbed to 10%  during the GFC (currently 3.5%) yet still, affordability due to inflation and consumer distrust weakens the housing market – as people are not listing their homes b/c they cant afford to buy “better” after they sell.

The GFC was marked by a significant collapse in the housing market, largely triggered by a proliferation of subprime mortgages and a subsequent wave of foreclosures. The Fed’s response included a series of interest rate cuts to stimulate economic recovery. In the aftermath of the crisis, home sales plummeted due to a lack of consumer confidence, tightening credit standards, and an overabundance of distressed properties flooding the market.

In contrast, the current economic landscape has been relatively stable, with improved lending practices and stricter regulations in the mortgage industry. The Fed’s recent interest rate hikes are driven by the need to prevent runaway inflation and maintain economic equilibrium. While rising interest rates might hinder some potential buyers, the overall housing market isn’t grappling with the same systemic issues that precipitated the GFC.

Home Sales: Then and Now

During the GFC, the housing market was a mess as plummeting property values left homeowners underwater on their mortgages. Foreclosures and short sales were rampant, leading to a glut of distressed properties that created a buyer’s market. Home sales dropped significantly, and many potential buyers were wary of purchasing properties due to the uncertainty surrounding the economy.

In the GFC, despite the harsh times, there were still 4.12M homes sold in the worst year, 2008. This year looks to be about 4.3M homes sold – a Large drop from 6.12 during Covid, but a far cry from the 7.08M in the Pre GFC Bubble.

In the present context, rising interest rates combined with higher prices have led to a slowdown in home sales, especially for those on the edge of affordability. However, the foundation of the current housing market is much stronger, with robust demand fueled by demographic trends, low housing inventory, and a healthier job market. While rising rates might dampen some enthusiasm, the overall impact on home sales is likely to be more measured compared to the GFC.

THE END?

The Great Financial Crisis was brutal on housing, and while higher interest rates can lead to a decrease in home sales, the housing market today is far more resilient and better equipped to weather such fluctuations that lead to the bottom dropping out on the values of real estate. The lessons learned from the GFC have prompted more cautious lending practices and stricter regulations, which contribute to the current market’s stability.  However, while people are not being foreclosed on and upside down in a mortgage – the opposite is now true.  Homeowners still have equity and moving is too expensive.
Today, the only people that move are those that have to move.  Life events like a new job, divorce, marriage or death – the life events that require a move despite the cost – those are the majority of movers in today’s market. (FWIW – this is how Revaluate identifies likely movers: exclusively by life events.  Select an appointment to discuss here) 

Today there are more agents than ever. In the GFC the successful agents shifted to working with lenders to sell properties, they worked with corporations like Blackstone to help buy properties. Adaption is key.  People are still moving – just at a reduced rate (-18.9% nationally)  year over year per NAR.   The trick is to alter your marketing and tactics to isolate those that are most likely to move DESPITE the conditions – and before your competition.

Wondering if Revaluate works? – Check out this new testimonial from last week.