Cracking the Myth: Are You Shopping For A House Or Looking For A Unicorn?

Comparing real estate metrics from one year to another can present challenges in a typical housing market due to market variability, which can diminish the accuracy and meaningfulness of such comparisons. Unforeseen events can significantly impact the circumstances and outcomes being evaluated.

Attempting to compare this year's real estate data to the previous two 'unicorn' years is virtually pointless. By 'unicorn,' we refer to something that is highly desired but difficult or impossible to find.

The real estate landscape underwent profound changes in the past few years, primarily due to the pandemic. The demand for homeownership surged as people sought homes with dedicated office spaces and spacious backyards. Waves of first-time and second-home buyers flooded the market, while historically low mortgage rates plummeted even further. The forbearance plan effectively curtailed foreclosures, and home values soared to unprecedented levels of appreciation.

These were truly 'unicorn' years—periods greatly desired but rarely seen. However, the market is now returning to normal as the unicorns have retreated.

Comparing today's market to those exceptional years serves little purpose. Here are three examples illustrating why:

1. Buyer Demand:

Headlines may suggest a scarcity of buyers, but the truth is that over 10,000 houses are still being sold daily in the United States. While buyer demand has decreased compared to the two 'unicorn' years, it remains robust when compared to normal years like 2017-2019, as demonstrated in the graph below (data from ShowingTime):

2. Home Prices:

Attempting to compare today's home price increases with the past couple of years is misleading. According to Freddie Mac, both 2020 and 2021 witnessed historic appreciation figures. To provide a more accurate perspective, the graph below also displays home value increases during more typical years (2017-2019):

As the graph indicates, we are returning to more conventional home value growth patterns. Although there were a few months of minimal depreciation in the latter half of 2022, Fannie Mae reports that the market has since returned to normal appreciation rates in the first quarter of this year.

3. Foreclosures:

Alarming headlines have highlighted the percentage increase in foreclosure filings. However, it is crucial to note that these percentages represent an increase from historically low foreclosure rates. The following graph, sourced from ATTOM—a property data provider—illustrates the situation:

Now that the moratorium on foreclosures has ended, there will be an uptick in numbers compared to the past three years. While it is disheartening for families to lose their homes, putting the current figures into perspective reveals a return to the normal foreclosure filings observed between 2017 and 2019.

In conclusion, this year's housing market is likely to generate unsettling headlines, with many drawing inappropriate comparisons to the 'unicorn' years. To maintain a proper perspective, it is advisable to consult a real estate professional, who can provide valuable insights and guidance.