What's almost just as crazy as the 2020-2022 housing market? The toilet paper market.
We all understand the need for toilet paper and the value it brings into our lives, no need to explain that in ANY further detail! So, let's use something we understand (TP), to explain the unpredictable mess of a housing market we experienced over the last 2 years and are STILL experiencing in 2022! Let's go!
1) Guarding our Assets
When the pandemic hit and fear set in, the first thing we all did was run to the store and stock up on necessities. Toilet paper being high on that list. We got prepared, hunkered down, and guarded our more valued assets with our life.
Let me ask you this: If you had an extra Costco-sized pack of toilet paper in the spring of 2020, would you sell it on Facebook Marketplace to make a little profit? Heck no! Why? Because you didn't know when, where, or how you were going to get your next pack of TP!
That stuff was GOLD! Even if you could sell this Costco-sized pack of TP for double the purchase price, you wouldn't even consider the risk because you still NEED TP.
That's exactly what happened with the housing market. We all individually (and thus collectively) decided, "I'm going to hold on to my house because what if there's isn't another one out there for me/my family!" My home is my most expensive and valued asset, I'm not going to casually sell it during a global pandemic with nationwide intercity rioting. Who would even buy my home? Thus the house-hoarding began. No one wanted to sell their house for fear that they wouldn't find another home because no one else was selling either. It was a game of chicken and everyone froze.
2) Values during a period of low inventory
This went on from April 2020 all the way through December 2021. For almost 2 years we were all scared to make a move. Who knew what was going to happen next?! We all sat back avoiding selling our houses and watched as inventory decreased and prices began to climb and climb simultaneously. Which instilled more fear and unpredictability.
Didn't we all notice the price of TP increase over those first few months of the pandemic? Toilet paper prices worldwide rose by an average of 3.37% between 25 March and 22 April 2020 amid the COVID-19 crisis, according to a recent report published by Finder. And I've also read that the US prices of TP have increased 16%-20% since 2020.
When inventory is low, and demand remains the same, prices will increase.
3) Values during a shortage
Let's just say all the TP was gone! All the stores in a 50-mile radius were wiped clean! Then, all of the sudden, someone gets brave (or maybe a little desperate for cash) and posts 1 roll of TP for sale on Facebook Marketplace for $5. How much would you pay for that LAST roll of TP? $10, $15? Maybe tap out at $20? Well, here's what happens in this bidding war: Your lower-income individuals would tap out at say $10, average income would tap out at $15, and now it's a bidding war between the wealthy, and within 1 hour that $5 roll of TP sold for $50. And $50 is pocket change for the wealthy.
Now, that's what happened to the housing market between January 2022 with 4,000 houses on the AZ market, and April of 2022 with 7,000 houses listed on the AZ market. Inventory was at its all-time low since the pandemic hit. And what happened to those houses listed for sale? 50k, 100k over asking, waiving inspections, properties sold as-is! And who won the bids? Investors. The wealthy.
And just like that, we were in a seller's market!
When inventory is severly low, and demand remains the same, prices will skyrocket.
4) What causes an influx in inventory?
Remember back in the Spring of 2020, you would never in your right mind sell your TP because you didn't know where you'd get your next roll? What if I told you your TP is now worth almost 2x your purchase price? In home values, that could be hundreds of thousands of dollars increased equity we're talking about! This gets really tempting for people who aren't so concerned where their next roll, I mean home, is coming from!
January was when people noticed houses selling for insane amounts, February curiosity set in about how sustainable this was, and by March people were heavily tempted to cash in too! We see the uptick in inventory by April that's when everyone really started to pull the trigger, hop on the bandwagon, and list their house for sale!
Inventory drastically climbs as more and more people list their homes for sale hoping they don't miss the boat of cashing in at the market's highest point! Hurry! Go! Go! Go!
But then, all of the sudden, come May/June some houses are starting to sit on the market a little longer than expected, there are fewer over-asking offers, and no one is waiving inspections... What's going on?
5) Values during higher inventory
Come July, we now have 17,000 houses on the AZ market. And BOOM! Just like that, it's no longer a seller's market.
When inventory increases, and demand remains the same, prices will decrease.
If every Walmart, Costco, and local grocery store was stocked full of TP, do you think your 1 roll of TP on Facebook Marketplace would still sell for $50? Nope. Why would I buy your 1 roll, when I can get that same roll somewhere else for cheaper?
House prices are still increasing because comparatively, our inventory is still lower, but it's just climbing at a significantly slower, more normal, rate. We are no longer seeing 50k-100k over asking. There's now enough inventory for us all to play in the housing market together; regardless of your income.
Let's all just take a deep breath! Ahhhhhhhhhhhh.
Keep in mind there are MANY other factors that come into play with the housing market over the last 2 years. But, never underestimate the influential power of your basic economic principles of supply and demand. They play a huge role in every housing market. We also learn a pattern of behavior that we all individually, and thus collectively, displayed over the last 2 years that proves we, as a people, make fairly predictable decisions.
My recommendation is to get with a realtor and mortgage broker who you trust to feed you accurate information, especially during times of uncertainty. If you don't know any, I have recommendations for you! ;)