03/17/2021
House values rose 10% year-over-year in January.
During the Great Recession, a little more than a decade ago -- the value of real estate was hit significantly. We spent ten years recovering as values reached pre-recession levels and then some. During the COVID-induced recession of last year, home appreciation actually accelerated. Just recently, CoreLogic confirmed that house values rose 10% year-over-year in January. The question is why have values responded so drastically differently this time around?
The first answer to that question involves history. Before the Great Recession we had a huge increase in home prices accompanied by loose underwriting standards and accommodated by a significant ramping up of new home building activity. Before the COVID recession we did not have loose underwriting standards and builders were not building enough homes to accommodate household formulation. Finding homes for sale was difficult before the recession hit. The decade-long growth in home values increased the equity of the average homeowner, who no longer was following the mantra of “no money down” when purchasing.
When the recession hit this time, not only did we start with more equity in homes and latent demand, we began with the decision to delay foreclosures and allow forbearance which immediately caused the listing shortage to become worse. Fewer would move to list their home while in quarantine as well. Add increased demand because so many were in remote working conditions and needed more space while spending so much time at home, and we had plenty of ingredients fueling bidding wars. Of course, it did not hurt that we also had record low interest rates making homes even more affordable than renting.
