Many people are sitting on the fence trying to decide if now’s the time to buy a home. Some are renters who have a strong desire to become homeowners but are unsure if buying right now
Cromford Market Updated -September 2020 📈
Dated: September 30 2020
We can see why many people will be thinking 2020 looks a lot like 2004/2005 with the CMI suddenly rising to over 300. We certainly agree that annual appreciation is likely to rise sharply over the next 6 months reaching well over 20%.
However, there is no sign at the moment that the CMI will crash back to below 100, as it did in 2005/2006. It is currently struggling to inch higher but while supply remains tight and demand strong, the status quo will likely continue.
There are dozens of things that are different now compared with 2005, but the most significant include:
1. In 2005, thousands of homes were being purchased and left vacant as they were snapped up by speculators
2. In 2005, rents were low and headed lower because there were more homes than people who wanted to live in them
3. In 2005, almost anyone could get a 100% loan with minimal documentation, and thus had no skin in the game if prices were to fall (as they did)
4. In 2005, few people thought the market could decline
5. Mortgage fraud was rampant creating artificial demand
6. The developers had built (and would continue to build through 2007) more homes than were demanded by the population growth
For all 6 of these, the opposite condition exists today.
1. Vacancies are very low
2. Rents are high and rising sharply
3. Qualifying for a mortgage requires financial resources (for example, a job) and must be supported by documentation, and almost all homeowners have equity
4. Many people think the market could go down, supported by articles claiming this is likely (although it is not)
5. Mortgage fraud is at a relatively low level
6. The developers have built fewer homes than demanded by population growth between 2008 and 2020.
It is not normal for the CMI to be above 200, never mind 300, so it will certainly come down from its current level eventually. However, this is more likely to be as a result of much higher prices damping down demand, rather than a flood of supply entering the market. We would need to see almost three times the current level of supply to get back to normal.
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