The real estate professionals in my company are reporting that they are feeling the market slow down. And from their perspective, it means that there just aren’t as many sales happening as there were last year or the year before. They are assembling fewer offers for buyers, and there are fewer people choosing to put their home on the market.
Curious about how this slowdown, after coming off of record high sales compared to the last time we had a slowdown after record high sales, I began digging into the data. Arguably, 2005, 2006 and 2007 show similar market activity to 2020, 2021, and 2022. Lots of sales were happening back then, thanks to a lending environment offering 100% loans, mortgages requiring no financial documentation, the ability to roll in closing costs to the loan so money needed to purchase was less, and what felt like favorable interest rates.
But then in 2008 and 2009, we started to feel the beginnings of the market slowdown that ultimately, resulted in the Great Recession.
I’m certainly no economist, but I did live through the recession as a real estate professional. When we compare the slowdown of 2008-2009 to the slowdown of 2022-2023, there are some striking differences that need to be recognized. Generally, a slowdown of any kind feels the same from a workload perspective, regardless of its cause, so there is a tendency to assume what’s happening now is the same as what happened then. But let’s take a look at the facts.
In data collected from the East Tennessee Realtors Multiple Listing Service with a 12-month snapshot between September 2008 and August 2009 vs. the same months in 2022-2023, I see that the number of new listings entering the market was about 31,000 then, while the number of new listings this past 12 months was about 24,000. That’s a notable difference. Fewer homes are being offered for sale now.
And when those new listings entered the market back then, they lingered longer. The average number of time a home spends on the market today from list to sale is 33 days. Back then it was 111. So, by comparison, the pace of sales today is still historically brisk.
Here’s an interesting fact from back then…once a house hit the market, and because it hung around longer, it meant that we were carrying an average monthly inventory of about 16,000 homes. Now, that number is just over 5,000.
But I think the most significant statistic is the number of homes we sold in our service area between September of 2008 and August of 2009…10,000, which seems like a lot until you compare it to the same months today…19,000 homes sold. Using rounded math, that means that nearly twice the number of homes are selling now as were selling then.
The difference is that buyer demand today is fueled by the fact that the Millennials and the Baby Boomers, two of our largest generations are legitimately needing homes. Covid allowed people to choose where they wanted to live vs. where they had to live and east Tennessee was discovered. Back in 2008-2009, buyer demand was, in large part, due to the fact that loans were easy to get with little proof that the buyer could afford the home over time. And when those buyers could no longer pay the mortgage, we saw a flood of foreclosures and short sales. Today, buyers have to go through a rigorous approval process proving they can afford their payments. The Tennessee Department of Labor and Workforce Development shows about an 8 percent unemployment rate between 2008 and 2009, while today, that number is around three percent. Another big difference between then and now.
Interest rates back then averaged 5.34 for the 12-month snapshot, and today the average is 6.62, although that number is rising. While this is a meaningful difference, our perspective on this number is likely affected by the speed at which rates have risen in the past year. The information to understand here is that interest rates are always changing, and lenders are developing programs that will allow buyers to refinance if rates go down, or they may qualify for a buy-down loan, which helps relieve the higher cost of borrowing for the first few years of the mortgage. Your Realtor can connect you with lenders that offer these programs.
So, compared to the last slowdown, we are selling twice as many homes, buyers have 1/3 of the number of choices they had then which causes competition (and thus home price increases), and homes that are listed are still selling in about a month. Prices are still increasing (although not at the double-digit percentage increase we saw in 2021), or they are holding stable because of the current supply/demand imbalance, with more demand than supply.
*"Thought Leader" is a blog series that shares insight and expert knowledge from Wallace leadership. This article by Wallace COO Claudia Stallings was originally published in the Knoxville News Sentinel.
