To make sure we provide information you are interested in, when you're interested in it, if there are stretches of
updates you don't open, we'll automatically decrease the frequency of the updates you receive. If you like the updates,
you just need to open them to keep receiving them.
You already have a saved search with that name. If you save, you will overwrite the existing saved search. Are you sure?
Are Headed For A Housing Crisis? #brokermac
June 24, 2020 at 3:17pm | Mac Rogers
the question of when is a good time to buy a house is followed by where are home prices headed? In this video I will talk about what the experts are saying, and we will also look at the data, just for good measure, to see how we can come up with our own
forecast and give you what I think will happen.
To say that this worldwide coronavirus pandemic and the economic recession have had a tremendous negative effect on the nation and the world is an understatement. Add to this the social unrest that we recently went through and still going through, you
can see why some home buyers or consumers basically can't believe why the real estate market or real estate prices keep going up. Let's not even include the upcoming election into the mix.
All this uncertainty brought about by both catastrophic events have made predicting consumer behavior nearly impossible. For that reason, forecasting home prices have become extremely difficult.
Normally, there’s a simple formula to determine the future price of any item: calculate the supply versus the demand for that item. In housing right now, demand far exceeds supply. As a matter of fact, mortgage applications to buy a home just rose to
the highest level in 11 years, while inventory of homes for sale is at (or near) an all-time low.
Think about this, in the middle of all this craziness we have the highest level or number of people applying to get a loan to buy a home. This combination is a recipe for strong appreciation of home values as we move throughout the year. Now you would
think that from this data we would have a consensus from economists but take a look at these forecasts:
CoreLogic: Year-Over-Year decline of -1.5%
Haus: Year-Over-Year decline of -1%
Zillow: Year-Over-Year change is forecasted to bottom out at -0.7%.
Home Price Expectation Survey: Decline of -0.3% in 2020
Fannie Mae: Increase of 0.4% in 2020
Freddie Mac: Increase of 2.3% in 2020
Zelman & Associates: Increase of 3.0% in 2020
National Association of Realtors: Increase of 3.8% in 2020
Mortgage Bankers Association: Increase of 4.0% in 2020
Clearly from this we can see that there is no consensus. One economist, Ralph McLaughlin from Haus, had this to say at their most recent update:
“The upswing that we’ll see this summer is a result of pent-up demand from homebuyers and supply-in-progress from homebuilders that has simply been pushed off a few months. However, after this pent-up demand goes away, the true economic scarring due to
the pandemic will begin to affect the housing market as the tide of pent-up demand goes out.”
What he is saying here is that basically this demand that we currently have is somewhat "artificial" in that there's pent up demand because of our current situation. Basically in March-April-May, buyers couldn't really go shopping the normal way and now
they are all coming online at the same time, thus creating this artificial inflation of the numbers. He also cites that builders could not deliver new homes also because of the work stoppage, thereby also reducing inventory artificially.
Here's the thing, he has a point here. I've seen builders that was suppose to deliver home in June and July move it out as far as October and even November. Also sellers that wanted to sell started holding off on moving for various reasons but mainly
related to our current economic and social climate. And yes when we got hit by this shelter-in-place, buyers dried. But now that we are opening up, we have this influx of buyers.
However we also have to take into account two things that is important before all these events started. When we entered 2020, demand was already high and inventory was already low. So the activity that we are seeing right now is just a continuation of
what really got us started. The difference is volume. The number of transactions are fewer.
Now I keep hearing people mention forbearance. The latest numbers show that there's about 9% of all mortgages in forbearance. This is actually slightly down so that's good news. A lot of people are citing this as a catalyst that could start a wave of
Here's the thing, after what happened to the last mortgage crisis, the government and the FEDs are so determined that we do not have a repeat of that situation that they are throwing everything at this to prevent that from happening again.
When this first started, the forbearance option that was being offered was you skip 3 months of payments and then on the fourth month you pay all of it together with the current monthly payment. Not really the best of options.
This quickly changed to the deferred payments being moved out to 12 months and payments can either be lump sum or broken into smaller installments. Better option.
Now, I actually talked to some homeowners whose forbearance got pushed out all the way to the end of the loan. This is the ideal situation and the best solution. Here's one caveat or disclaimer, every servicer is different so you have to talk to your
servicer and see what they offer, especially if your loan is not a Fannie or Freddie loan. But from what I am hearing from different clients and different homeowners that have availed of the forbearance option, their lender has been more than willing
to help to make sure that homeowners don't just go into foreclosure. In some cases, a loan modification has even been offered!
On top of this home equity is also near its highest levels! Meaning most homeowners are NOT upside on their mortgage like the last time we had a foreclosure crisis. Homeowners are or will not be walking away from their homes and just leaving thousands
of dollars on the table.
Another thing that is helping home prices is historically low interest rates. These low rates are encouraging people to start looking into buying their first homes thereby creating more demand. This demand, coupled with lack of inventory push prices upwards.
With all these things, where do we go from here? From what I'm seeing and what I'm experiencing here in the east bay, pricing is mixed. It's mixed because the housing market should not be treated as one big market. It's very local. It varies from
city to city or even neighborhood to neighborhood. If we are talking about generalities, then yes, I will tell you home prices are UP!
I have written offers for clients wherein we competed with more than 10 offers in certain neighborhoods. Likewise, I have also written offers in other neighborhoods where our offer was the only offer on the table. But even in those markets, prices
remained strong. Sellers were not willing to discount their homes because their belief is that someone will come along to pay their price. In most cases they are right.
The one thing that has not been really discussed or touched upon are renters. While the government is doing a lot for homeowners, there's really not a lot being done for renters besides a moratorium on evictions due to the virus.
Landlords in most cases still have to pay their mortgages on these properties. Clearly if a landlord gets a forbearance option on an investment property, it would be nice if they extended this to their tenants.
But what about those landlords that are not given forbearance options? What about tenants who continue to suffer because of the pandemic? They can't just get up and put a sign and sell the apartment. They don't have that option. This could be an issue
down the line as the economy opens up and we see how businesses fare.
The bottom line is this.
If you are looking to buy a home right now, interest rates are great, and prices remains strong and probably won't dramatically change this year.
If you are a home seller, this does not mean you can slap a lipstick to a pig and expect top dollar for your property in less than a week. You still need to make sure that your house is turnkey ready for the next homeowner and price it accordingly.
This will ensure that you get the most attention and a higher likelihood of getting multiple strong offers.
I hope you got useful information out of this update. If you are a first time home buyer or a move-up buyer, I have a free guide that will give you an overview of the home buying process and de-mistify or make it less complicated.
For the home owner that is thinking of selling, we also have a guide that will help you start the process and we also offer you a free complete market analysis so that you have an idea of what is going on in your neighborhood.