Contributed Writer: Housing crisis or housing shortage?

Homeowners and potential homebuyers are not reliving the 2008 housing market collapse. But there is a housing shortage that is having quite the butterfly effect on the real estate market ”” mortgage rates are increasing daily, bidding wars are becoming the norm and many once-qualified homebuyers are being left on the side lines. 

As if buying a new home didn”™t come with enough stress, the shortage has upped the ante on factors like loan qualification, competition and outright availability.

But how exactly does today”™s housing shortage differ from the 2008 crash? The catalyst of the 2008 crash was the widespread and irresponsible deployment of flimsy loan programs and products, which allowed under-qualified borrowers to secure advanced loans. Fueled by low interest rates, easy credit and insufficient regulation, the housing bubble finally burst and left many homeowners with mortgage payments they could not afford. These homeowners often were forced to default and the homes became foreclosures, which led to the massive breakdown of the mortgage-backed security markets and the overall economy.

In short, the 2008 crisis was caused by unregulated loans and irresponsible lending. There was no real oversight and the lender/appraiser relationship lacked appraisal independence.

The volatility of today”™s market has a more benign root cause: people are simply not selling their homes as often as they used to, opting instead to renovate or upgrade their existing home. Compound this trend with the pandemic, which nearly eliminated the option to build a custom home due to worldwide lockdowns that slashed the availability of building materials and skyrocketed their prices.

It sounds like a word problem in a math textbook: when you subtract the ability to build homes and combine it with a drastic decrease in available homes for sale, what do you have left? The answer is an alarming ratio, with buyers far outnumbering sellers.

What”™s the market outlook amid the housing shortage? Not unlike the pandemic, the housing shortage is propelling many people into making life-changing decisions, like moving out of the area to states with lower costs of living. Because the shortage has created a highly competitive seller”™s market, homeowners that are willing to sell now are often receiving a premium price for their homes.

There is no denying that it is a fantastic time to sell, especially if your plan involves moving to states with lower costs of living. Many New York and Connecticut residents are selling their family homes for more than they ever imagined, trading in their Northeastern roots for much cheaper yet likely comparable homes in Texas or South Carolina. Those who are near retirement age are positioned especially well to take advantage of such an opportunity.

If a spontaneous move isn”™t in the cards for you, you”™re not alone. Perhaps you”™re ready to sell, but not ready to retire or leave the area. In this case, downsizing to a townhome or condo is a viable option. It”™s true that homes in multifamily communities are also selling high right now, but these properties have the potential to become income-producing in the future, should you choose to move out-of-area down the line and rent out your home.

Construction loans are also poised to make a comeback, likely sooner than the housing shortage will resolve itself. The lack of housing inventory before the pandemic made building a home a fantastic option ”” and if you couldn”™t find what you were looking for, you could build it.

Although the supply chain is still recovering and prices are still higher than before, securing a construction loan and building a home could be a great alternative as the industry continues to recover.

There”™s also an important silver lining to remember when considering mortgage rates, housing shortages and rising prices: all things are relative. When I bought my first home in the 1990s, the mortgage rate was over 9%. Compared to the 5.125% we”™re seeing today, and compared to the rates of other loans like student loans and car loans, a 5% rate suddenly doesn”™t seem so staggering.

Of course, the speed at which the increases are occurring is alarming, and rates will likely continue to increase throughout the year ahead. But relativity is important in navigating today”™s unpredictable market.

All in all, real estate is an industry in which the value of your assets almost always appreciates over time. A volatile market is always a bit unnerving, but in the end, the best thing potential home buyers can do is find an expert to help them steer through the uncertainty. With an experienced lender in your corner, you can take the homebuying process one step at a time and ensure that you”™re making healthy financial decisions for you and your family.

David Carey is vice president and residential lending manager at Tompkins, the Brewster-headquartered financial institution.