When Will Housing CRA$H ?
Subject: When Will Housing Crash?
Everything about the current housing market can be explained with a simple supply and demand chart, pictured here:
This simple chart explains EVERYTHING happening in the current housing market frenzy in Livermore, the bay area, and the entire United States. You don’t need to be an Economics major (which I was) to explain it. Here goes:
In a normal, balanced market, as the price goes down, demand goes up (purple line) and as prices go up, available supply also goes up (light blue line); Dot A represents the equilibrium in a normal market. In Livermore, for example, in a normal market there are approximately 200 homes for sale. Currently there are bout 100 homes for sale in Livermore.
If there is less supply but same demand, for whatever reason, the purple line shifts right – that is, at the same price, now there are less homes available for sale, and that results in prices rising (Dot C). If there is more demand but same supply, for whatever reason (hello lower interest rates!) the light blue line shifts left; that is, with the same supply but now more buyers, prices go up (Dot B).
Right now, BOTH of these things are happening – less supply and more demand. The result is a perfect storm where almost the same amount of homes are selling (it doesn’t seem like this because homes are staying on the market around 7-10 days instead of 30+ days) but prices are MUCH HIGHER! Dot D.
So, how do we get back to a ‘normal, balanced’ market (Dot A)? Two things have to happen: 1) Demand has to decrease (higher interest rates, weary buyers, etc may lead to this) shifting the line left and 2) Supply has to increase (shifting the line right). Increased supply is likely to happen in the next 60-90 days, as more homeowners decide it’s time to CA$H out!.
When will this happen? THAT I don’t know. What I do know is, it will happen when a) inventory increases back near normal levels, 200 homes for sale in Livermore; contact me for the baseline inventory in your town and b) demand plummets to the point were there aren’t 50 showings and 10+ offers on almost every new listing during its first week on market.
If you have any questions on this, or any other real estate matters, please contact me. I’m here to help.