With the run on Silicon Valley Bank only a little over two weeks old, and the news of First Republic and Credit Suisse making headlines, many of us are getting 2008 vibes all over again. It’s perfectly reasonable to follow the thought process of banks failing to I should worry about the economy to “crap the housing market going to crash”… I just typed it out in 10 seconds and I guarantee you followed that. AND while obviously there are real concerns about bank’s liquidity and regulatory oversight, we are in NO way going to see a repeat on housing prices like we did in the great recession. While we could dive into credit strictness, current unemployment numbers or even consumer sentiment as reasons why this will not happen, the number one indicator as to why our housing prices will remain stable, and even continue to go up in some markets, is due to a economics 101 principle- the law of supply and demand, or as we call it in the housing market: inventory. 

In this blog post, we'll explore why low housing inventory can help keep the real estate market stable, even if the economy feels shaky.

First, it's important to understand what we mean by low housing inventory. In simple terms, this means that there are fewer homes for sale (supply) than there are buyers looking to purchase a home (demand). When there's low inventory, it can create a sense of urgency among buyers, who may be willing to pay more for a home in order to secure it before someone else does.

One reason why low housing inventory can help keep the real estate market stable is that it creates a seller's market. When there are more buyers than there are homes available, sellers have more power to negotiate favorable terms. A general rule of thumb we use to determine if it is a “seller’s market” versus a “buyer’s market” is the number of months supply of homes available. This number basically says “if we stop putting new listings on the market TODAY it will take is this many months to sell all the houses listed.” A balanced market is 6 months supply of inventory. Anything less then that is a SELLER’S market, while anything more then that is a BUYER’S market. As of February 2023, for the counties of Oakland, Macomb, Wayne & Livingston combined, we had 1.5 months of inventory for ALL of Metro Detroit. This is why the amount of homes on the market can help keep home prices stable or even increase them, even in the face of economic uncertainty.

Another key factor that can help keep the real estate market stable in the face of low housing inventory is interest rates. When interest rates are low, it can make it easier for buyers to afford a home, even if prices are higher than they might otherwise be. While rates are currently higher then in 2021 and the beginning of 2022, they are still on par with national average from 1990- 2020 and far lower then the peak in the early 1980s. Fluctuations up or down on interest rates will impact buying power for potential homeowners, which could impact the demand for homes. When inventory is low like we are seeing now, even a reduced pool of buyers can create demand on just a few available properties.

To sum it up, low housing inventory can be a stabilizing force for the real estate market, particularly in the short term. By creating a sense of urgency among buyers low inventory can help keep prices stable even if the economy feels shaky

.

 If nothing else, walk away with this fact from reading today: at the PEAK of the housing market imploding in 2008, our local market here in Metro Detroit and Michigan saw over 17 months of inventory at one point… and we are no where near that today. So let’s all shake off the 2008 worry, ask questions to our trusted financial and real estate advisors and lean into stable 2023.