Hello everyone and Welcome to another episode of Selling Greenville your favorite real estate podcast here in the lovely Upstate of South Carolina I'm your host Stan McCune as always realtor here in the greater Greenville area you can find all of my contact information in the show notes if you need a realtor for any possible reason buying a home selling a home investing in real estate all that stuff I'm your guy and just a reminder as always please if you haven't subscribed to the show open up that podcast app that you're using hit the little subscribe button leave a five star rating leave a short little review I would appreciate any of that that you guys can do to express your thanks for the show if assuming that you enjoy it today I'm going to be talking about comparing the current market to what the market was around the Great Recession this is something that we're starting to hear people talking more and more about this because of how many strange things are happening and we had talked about this a little bit in the past but I've never actually done a deep dive into really comparing specific to the Greenville Market I have to clarify even though this is a broader topic everything that I discuss in this podcast is specific to the Greenville Market because that's where I'm getting all my data from but even though we have discussed this a little bit in the past I have never really dove into the data of what did it look like in the months leading up to 2008 what was the market like what was happening in real estate in comparison to what is happening now and people are growing concerned about this because we're still seeing this frenzy of a seller Market we're still seeing tons of chaos prices going up at unprecedented rates now we're seeing added in into the mix mortgage rates going up just also at basically unprecedented rates I mean it's insane just like overnight it went from 32% to basically 5% for a 30-year conventional loan and so we're seeing all of these things happening and people are starting to to say okay I'm starting to hear these Rumblings of all right the market can't be pulled in all these different directions it has to collapse right it has to collapse under under the weight of all of this and we've discussed this before that there is a misconception that just because things are getting expensive just because people are buying real estate at a at an unprecedented Pace that does not mean that there's a bubble a bubble is artificial Demand right it's it's when sales are happening artificially when sales are happening because people actually want to buy and actually need to buy that is not a bubble and particularly when when we're in a situation like we are now where a over a quarter of real estate transactions in Greenville are cash buyers a larger percentage than ever before are putting down large down payments 10% 20% and above that also which we've discussed in the past is a a big distinction from back in 2005 through 2007 where people were doing these no do loans where they didn't even have to basically prove their income and zero down and adjustable rate mortgages that overnight could go up you know five 6% from where they were we are not seeing that type of real estate environment right now like we were back then but what about the other indicators right because I've already talked about all that stuff before I'm not going to rehash all of that what are the other indicators in the market when we you know compare what is happening today in terms of Supply in terms of demand in terms of days on Market all of these various things how does it compare to what was happening in the leadup to the Great Recession now let me start by saying all of my data on here is based on the greater Greenville Association of realtor data and it's it's imperfect because I actually kind of have to look at at graphs that don't tell me the exact numbers but I can pretty much I these numbers if they're not exact they're really close like I might say a th when the number is actually 980 so on a meta level meta level these numbers should be pretty close but let's just start by kind of setting the stage here the Great Recession started most people pinpoint December of 2007 as when the Great Recession like actually started I had no idea I was in college in December of 2007 I had no idea I graduated in 2008 I did not know I was graduating into a recession it's funny you know that was probably the worst possible time in the world to like graduate not the worst time in the world I'm exaggerating but the worst time in the past I don't know 30 or 40 years to graduate and enter the workforce and I had no idea what I was in for when I graduated May of 2008 it was quite the ride but up until that point up until December of 2007 a lot of people thought that the market was okay right it didn't seem like it was teetering it didn't seem like it was about to collapse people didn't realize that that there was a housing bubble that was being created the closings in Greenville here's here's how to think about it 2007 closings in Greenville were comparable to the closings that were in 2014 and 2015 so if you want to think about the market if you have been buying and selling or have had an interest in real estate in Greenville or really anywhere since 2014 2015 imagine what the market was like then in terms of how many closings were happening per year and that's basically what was happening in 2007 2014 2015 by that point we were we were pretty much out of the recession at that point and that was a that was a healthy Market there wasn't anything interest rates were were good there there was Supply but there was also demand good Market that was generally speaking from the standpoint of the number of closings what 2007 was like but there were cracks in the system that now we can look back and see ooh okay there this was this didn't just come out of nowhere this should have been seen people should not have been surprised by this even though the closings were comparable to 2014 2015 levels nothing else was and the housing market was really hanging by a thread so let's just take it kind of let's break down kind of one thing at a time here so if we look at days on the market 2007 generally speaking the days on the market for a house this was the the period of time from when it went on the market until it went under contract was typically 80 to 100 days that is a very very large number we haven't seen a number that high in quite some time so even though there were a lot of closings it was taking a really really long time for homes to go under contract 3 months basically for for homes from the time they were listed until they went under contract that is oftentimes a massive indicator that there is too much Supply and not enough demand a a the opposite issue of what we have right now right now we have not enough Supply and so much demand all right so in 20 7 leading up to the Great Recession there was indicators that there is a massive issue of in the reverse of what we have today of supply and demand right now our days on Market are averaging around 20 to 30 so literally like a third to a fourth of what it was in 2007 so by that indicator we have a completely different Market a completely different scenario than what we have right now in terms of let's look at the the median sales price trend so in terms of of the median sales price this is something that you know we try to track this over time we try to see okay how is it going are obviously the median sales price is seasonal we see prices go down a little bit take a little bit of a dip in the winter and all that but they generally just keep going up that's what appreciation is that why people like to to purchase real estate as an investment because in theory that chart continues to go up that that sales price that that trend of appreciation continues to go up and in 2007 basically we we didn't really see from 2007 to 2008 much of a change in terms of the trend for the median sales price here in the Greenville area until spring of 2009 spring of 2009 is when we start to see really the the major concerns happen which is interesting because that is squarely over well over a year from when the recession started but this is not to be surprising because we've and we've discussed this before the only way that prices can go down in in real estate is if you have just a dramatic over supply versus demand but even with what I was just explaining before that there was a lot of Supply in comparison to to the demand this prices were still going up for a variety of reasons Greenville becoming more attractive to a lot of people etc etc inflation of course plays a factor into that as well but what I believe is the reason why there was you know basically a 14 to 15 month lag from the start of the recession until we started to really see an impact on prices going down is because that is when foreclosures really started to hit the market and if you look at the the trend of foreclosures yeah it it skyrockets it starts to it it started to go up well before 2007 and this is one of the the metrics that we can look at that was very very concerning back then foreclosures were steadily going up from 2005 to 2006 to 2007 and then skyrockets 2008 2009 and 2010 before it finally starts to resend or whatever the right word is resend go down it started to go back down in in 2011 and so what happened was is that glut of foreclosures that started happening in 20072 2008 those finally started to to actually come on the market in 2009 because if a bank starts the foreclosure process it it takes a while for that forclosure process to actually get to conclusion sorry I just knocked over a box of tissues it takes a while for for those foreclosures to actually get on the market once they do those foreclosures tend to be cheaper than the other houses that have not been foreclosures that have sold in the area and so that is the the reason why prices can go down generally speaking that is what needs to happen we don't see prices go down they stay flat in in the worst case scenario typically in Greenville we see them staying flat until foreclosures short sales and the like hit the market now what are we seeing right now well foreclosures are at record lows right now so if we compare this to 20 7 roughly 1% of housing units were in foreclosure it was actually a little bit more than 1% what we have right now or at least in 2021 was 0.11% that is lower than it than at any other time the the graph I'm looking at goes back to 2005 2005 it was 46% 0.11% and this is is not in Greenville this is the entire housing market okay so this is not a GG stat this is this is for the entire us I I don't have this number for Greenville specifically but Greenville mirrors the rest of the US in this way we have seen a steady steady decline in foreclosures the past the past few years and that has only gone dramatically down the past two years particularly the past two years we're we're seeing foreclosure rates so low it's basically non-existent and so that is a that is such an an amazing indicator for this housing market that Trend would have to reverse dramatically like we would have to have we would have to have almost 10 times the foreclosures that we have right now in order to compare to what it was in 2007 that is that's a huge number and so what that tells me is that prices are not going down they are not going to go down I've said this before but I've got the data for you guys we would need to have foreclosures hit an unprecedented number well actually a precedented number we would have to have it hit something greater than 2007 levels very very quickly and then it would take another probably 15 is months after that before we would actually see the market convert into a clear buyer Market with prices on The Descent what about inventory we I alluded to this before when we were talking about the days on Market but the inventory the month supply of inventory in 2007 was in the six to8 month range so that is what we would consider a buyer Market and and you know we typically consider anything greater than 6 months to be a buyer market and and the total inventory of houses for a given month was in the 7,000 units range 7,000 units which is what we use to refer to you know houses condos Etc 7,000 total how does that compare to today how that compares to today is we have 1 to two months of inventory and total inventory is in the 2,000 units range that is 70% less inventory than what we had in 2007 leading up to the recession that is again an incredible number what it would take for us to be able to get back to to the kind of inventory we had back then it would be incredibly difficult right because a lot of this is spurred on by new construction new construction right now is still being hampered by the pandemic it's still it's being hampered by government regulation so we're seeing EV pretty much every area in the US is becoming stricter on new construction because people are are like you know whoa I don't want all this Farmland converted into a new subdivision all this Farmland right by my house I don't want that so people are complaining things are getting stricter environmental requirements are getting strict and so all of these things are putting the squeeze on new construction that's the only way that we can get out of this inventory crisis of low Supply is by building more houses but we are in a situation where we're where we're building way fewer houses than we need to and and there would be it would be really really difficult and I'm I'm going to get into this here in a minute really difficult for us to come anywhere near that inventory range that we had in 2007 and by the way we to to get to the 2007 climate we would need to surpass that 7,000 because the demand today is higher so in order to to get to something that resembles what the climate was in 2007 that inventory number would have to be even higher than than the 7,000 a month range and right now it's sitting pretty at around 2,000 and so let's look at the Demand right in February February of 2007 there were 750 closings how does that compar to February of 2022 there were 1,150 closings this is in according to greater greater Greenville Association of Realtors that's a 50% increase 50% great it's actually greater than 50% of of 750 you come up with 1150 so what's remarkable about that is that's that's a 50 % increase despite the fact that that that level of Supply is so low right we had Supply levels in the 2000 range but 1150 closings whereas in February 2007 Supply was in the 7,000 range but with only 750 closings that is again it is a completely incomparable scenario an incomparable situation when you comp compare the supply versus the demand in 2007 unbelievable amounts of supply and very low demand relatively speaking 2022 unbelievably low Supply and Incredibly high demand so in order for us to match those 2007 levels really we need to see somehow Supply go up and I've already said that's really not going to happen like we don't I want it to happen we don't see any I any scenario where that could happen at least not in the Greenville area it is it it would take years of of deregulation and supply chain to to repair itself and a bunch of Builders to become a lot more aggressive and to just start building building building everywhere for that to be fixed and then with regard to demand how is demand just going to go away how is demand for housing in the greater Greenville area just going to disappear it's not it's not going to disappear the only way that it disappears is if there is again some sort of recession that happens but remember in 2007 that was a unique I've said this before I'm going to say it again and I will say it again in the future 2007 was a housing market crash so it literally was a real estate recession we don't know at least I I don't know what 20072 2008 would have looked like if it was a comparable recession but wasn't caused by the housing market how would the housing market have been Downstream affected I don't know because it was a housing market crash that led to a recession right now what we would need is for a recession to then as a byproduct of it lead to lower demand people able and willing to buy houses which would then lead to a market crash but the the demand would have to go so it would have to to go down so much and again it just seems incredibly unlikely there are several metrics when we look at the at the historical data that point to Greenville shifting from a buyer Market to a sellers market around the 2015 to 2016 time period so that's when that's when we saw really the market finally you know as as our economy was really coming out of the recession and and fully fully healed from from all of that I guess some people might argue with me on that but for the purposes of this podcast I'm going to say fully healed from the Great Recession the housing market saw that flip from a roughly a buyer buyer Market to a sellers market around 2015 to 2016 so what were inventory levels around that time inventory levels around that time were around 4,000 to 5,000 a month so that was still a sellers market and they had 200 to 250% of the houses that we have today so even if we gained inventory on on you know double what we currently have double the inventory what we currently have and if demand was comparable to what it was in 2015 2016 and it's more than it was back then but even if even if demand went down I doubled we would still be basically in a sell's market back then they had their closings in 2015 2016 which is really the best metric I can use for demand was 40% lower so the supply was double and the demand was roughly half of what it is now so and that was still a sellers Market that is again just insane that is how insane of the sellers Market is right now to correct you are looking at a at a correction that would be historic it would be unlike anything that we've seen probably since the Great Depression it would probably take the only thing I can come up with in my mind and I'm no Economist but would be a a crazy War a Crazy World War III type of scenario that would cause this this type of crazy Market correction comparable to what we saw in 2007 to 2008 I I I cannot see how these supply and demand issues can resolve could could correct in a dramatic way in any other way so again to to not even going back to 2007 going back to like 2015 2016 when when the market was healthy but had just flipped over to a sellers Market what would it take for us to get back to to that level so we're averaging right now around 1,600 new listings per month and about 1,400 new contracts per month those numbers are nuts but that's what that's what we're averaging to get back to 2015 to 2016 levels of inventory just by the end of the year we would need listings which would be the supply part of supply and demand to stay the same but for the demand for the the new contracts to immediately drop immediately like right now tomorrow drop by 20% and stay there until the end of the year and if that happened if we just overnight immediately saw a 20% drop in demand which would be unbelievable right that would be an insane Drop Like higher interest rates are not going to cause that I don't care what you say what people you know how many people are freaking out oh my goodness you know mortgage rates have gone way up mortgage rates are not going going up they would have I don't know what level have to go up to in order to cause a 20% drop in demand but it would have to be again astronomical maybe like n or 10% something insane like that that's what that's what it would take in my opinion for us to have demand immediately dropped by 20% and then it would need to to be dropped by 20% for another 8 to9 months before we would finally find ourselves with 2015 to 2016 level s of inventory and that is still a seller Market still a sell Market to get back to 2007 levels pre- recession by the end of the year to get back to those Levels by the end of the year we would need to see demand drop immediately by 40% and stay that way for the next nine months and then for us to see something similar to what happened then in 2008 the ACT ual Great Recession itself that it would need to drop even further now how does how does that drop how does that 40% drop compare to the Great Recession at least in Greenville in Greenville we saw a demand drop by 30 to 35% so this would what it would take for us to get to 2007 levels of supply and demand we would need to see overnight a greater Market correction than what we saw in 2007 when the recession actually happened the end of 2007 and 20 2008 we would need to see a greater Market correction overnight than what happened then and that correction would have to continue for 9 months straight in order for the market to actually see something comparable to what we had during the Great Recession and so this is why when we had one month of basically no homes being listed or sold during when when we had the lockdown right at the beginning of the pandemic this is why the housing market didn't crash because we need nine months of that we well nine months of of it being 40% less we need months upon months upon months stacked together of really bad numbers of really high Supply really low demand in order for us to get anywhere that resembles 2007 from the standpoint of the housing market and as I mentioned before foreclosures are at historically low levels and there's no reason to think that that won't continue because up until this point people have been have been purchasing with a lot of cash and with low interest rates now as interest rates go up might people might that strain the system a little bit more yes yes it will 0.11% foreclosure rate that's not going to it's not going to stay there it will come up but for it to come up to levels that are that are disconcerning or disconcerting it would have to be again tremendously high back in 2016 I just said that was a sellers Market 2016 it was 7% That's six times that's greater than six times what what we had had in 2021 so we have a very very long leash on this on the Foreclosure rates and on all of these other things so here's my conclusion from this what we're seeing right now in terms of the the supply and demand issues this is not changing I don't care what happens with interest rates I don't care what happens with inflation I don't I don't even care if we have some kind of a a mini recession it take a borderline depression Great Depression type of of economic climate for the housing market to truly see a flip to something resembling a buyer's market I shouldn't say something resembling a buyer Market but to something resembling the the 2008 to to 2012 level of buyers Market okay we could see we could see it with I could see it within a few years flipping to a buyer Market but to be a market where prices are going down where we're seeing just home sitting for a third to half of a year before they go under contract like what we saw back in the Great Recession listen every metric that I'm looking at tells me we are years away from that barring some kind of nuclear apocalypse that is that's the only thing that I could personally see that would cause that to happen that said as I've said in previous podcasts we do have to monitor this this mortgage rate situation closely we don't know the ripples of it but I'm very confident that one of the ripples will not be lower prices one of the ripples will not be a tremendous amount of increased Supply versus the demand we might see minor I I do expect as I've said before price increases to slow down but they haven't yet I'm telling you right now I am I'm out there in the market right now it nothing is slowing down yet and so at some point it will have to we have to think that it will but all the metrics right now point to that this Market is going to remain crazy for quite some time buckle up unless we go to war with Russia or something like that and Russia like bombs the US God forbid they do but honestly I think it would take something insane like that for us to see something that resembles what happened in in the 2008 period of time when we entered that Great Recession and had the housing market collapse like it did I hope you guys found that to be informative if you have any questions please let me know you can find all my contact information in the show notes if you need to reach out to me for any reasons need a realtor to guide you through a real estate transaction I'm your guy and as always if you like the show if you love the show please leave a fstar rating please leave a review Please Subscribe download episodes do all of that stuff I appreciate you guys I hope you have a good rest of the week [Music]