Home Sale Predictions 2021

home sale predictions
Home equity 2020

Given the performance of the housing market this year, can we make home sale predictions for next year? The housing market had quite a year!  It’s amazing how resilient the market is, which demonstrates the appeal of homeownership.  Even after a significant spring slowdown, home sales rebounded to record levels in the fall.  NAR’s Existing Home Sales and Pending Home Sale Indices for October 2020 increased year-over-year 26.6 and 20 percent respectively (nar.realtor).  Even as we headed toward the holidays, NAR’s November Existing Home Sales increased 25.8 percent year-over-year.  And year-over-year median home prices increased 14.6 percent. 

While some experts expect the recent housing market activity to continue, others question if this intense home buying is sustainable.  Making home sale predictions for the new year has always been predicated on recent trends.  However, 2020 was different.  Unexpected and unusual events occurred throughout the year affecting the housing market.  First taking a pause because of an economic shock, home sales made up ground later in the year. 

Recent trends suggest that home buying will continue at a healthy rate, as long as the economy remains relatively similar.  However, being an election year there is anticipation for change.  Even many economists, who are typically ready to offer their opinion, are ambivalent about the economy.  This may suggest that the economic outlook for the near future is uncertain.

A main factor to watch in 2021, is employment.  It’s a known fact that unemployment directly effects home sales.  In periods of increasing unemployment, home sales decline.  A 2010 Florida Realtors (floridayrealtors.org) survey demonstrated a correlation between unemployment and foreclosures.  There is no coincidence that home sales strongly rebounded along with employment and the economy.  If employment remains stable into 2021, home sales will continue to over-perform. 

Other factors that will drive the housing market in 2021 include mortgage interest rates, home sale inventory, and home buyer demand. 

Mortgage rates have been relatively low since 2008.  At that time, rates hovered in the low 4’s, and were though to be “historically low.”  Also, consider that mortgage rates were in the 18 percent range during the early 1980’s.  Even during the go-go market of 2005-2006, rates hovered in the 6 percent range.  But the most recent mortgage interest rate average of 2.66 percent for a 30-year-fixed rate is described as “another record low” by Freddie Mac’s December 24th 2020 Primary Mortgage Market Survey (freddiemac.com).  If mortgage rates remain low, home buyers will be incentivized to buy homes.

Another after-effect of the Great Recession, which continues today, is low home sale inventory.  The Great Recession changed how consumers thought of housing.  Since 2008, home owners have remained in their homes much longer.  Many growing families make due with smaller spaces, rather than moving-up to a larger home.  Many older home owners are deciding to “age in place,” in lieu of down-sizing.  And telecommuting is outpacing job relocation.  Home sale inventory of non-distressed properties will continue to remain low through 2021.

There is always “home buyer demand.”  Meaning there are always active home buyers.  However, the strength of the demand varies.  Home buyer demand is typically gauged in hindsight through home sales and pending home sales.  When you combine housing stats with other factors, such as employment, economy, and mortgage rates you can estimate the strength of future home buyer demand.  If economic factors remain stable, home buyer demand will continue to be strong in 2021. 

Original published at https://dankrell.com/blog/2020/12/27/home-sale-predictions-2021/

By Dan Krell
Copyright © 2020

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home Prices 2021

It’s almost inconceivable to think that the housing market will undergo a foreclosure crisis similar to what we went through back in 2008.  How will home prices 2021 be affected by an impending wave of foreclosures?

home prices 2021
Home Buyer traffic 2020

If you remember, the 2007 housing market peaked as home prices skyrocketed.  Homes were a hot commodity as home buyers and speculators seemingly could not get enough.  But by the fall 2007, as if someone flipped a switch, inventory piled up.  There was a reckoning in 2008 as the market was flooded with foreclosures.  Home prices dropped to the lowest levels in a decade and days-on-market averaged in months.  It took five years for home prices to stabilize and maintain solid gains.

Fast forward to the 2020 lockdowns.  The housing market took off like a rocket during the summer and fall, after taking several months off.  Pent-up demand was the catalyst for record home sales leaving inventory depleted and forced upward pressure on home prices.  Housing is again economy’s workhorse.

A November 19th NAR press release (nar.realtor) touting October home sales indicated that existing-home sales increased 26.6 percent year-over-year!   Additionally, the median existing-home sale price increased 16 percent year-over-year.  All this occurred as home sale inventory levels are historically low.  Interestingly, it was noted that about 70% of homes sold during October, which means not all homes sold.

Additionally, October’s pending home sales point to a strong market into 2021.  The NAR’s October Pending Home Sale Index indicated that although new contracts declined a slight 1.1 percent from September to October, the year-over-year new contracts increased about 20 percent!

With stats like this, many industry experts are expecting a strong housing market and increased home prices 2021.  The high expectations for the housing market is demonstrated by a December 3rd HousingWire report (housingwire.com) titled, “Even with low inventory, expect a strong 2021 housing market.

home prices 2021
Home Sale Inventory 2020

And as many celebrate this hot housing market during a global pan-demic, some are raising concerns about the many home owners who are delinquent on their mortgages.  Unfortunately, delinquent mortgages haven’t received as much coverage as it probably should have.  Many home owners are unable to stay current on their mortgages due to lock-down job cutbacks.  As a result, some are expecting a surge in foreclosure notices.

An October 13th CoreLogic press release indicated that the July mortgage delinquency rate (30 days or more late) was 6.6 percent.  Although the rate slightly dropped from June’s 7.1 percent, serious delinquencies (90 days or more past due) jumped to 4.1 percent (compared to 1.3 percent a year earlier).  Serious delinquencies are the highest since April 2014.  Troubling is that mortgages which are 120 days or more late surged to 1.4 percent – which is a 21-year high, eclipsing the 2009 peak!  The metropolitan areas experiencing the highest delinquency rates are those where home price increases made the most gains (such as New York, Miami, Las Vegas, and Houston). 

So, what does this mean?

An August 27th CoreLogic report made a case for declining home prices in 2021.  There’s no denying it, there is a foreclosure wave waiting in the wings.  It’s unclear when the foreclosures will occur because of the current pan-demic moratorium.  However, if foreclosures are as numerous as they were in 2008, home prices 2021 will likely decline when these homes come to market.

By Dan Krell
Copyright © 2020

Original located at https://dankrell.com/blog/2020/12/05/home-prices-2021/

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Stock Corrections and Housing

stock corrections and housing
Foreign Home Buyers Investing in the USA

Each time the stock market plunges there’s speculation about a wide spread economic contagion.  Talking heads and news headlines predict doom and gloom, as well as speculating about the effects on the housing market.  Because Wall Street reacts to all types of news and events, the effect of a stock crash on the housing market can vary. But are stock corrections and housing slumps connected?

If you want to see direct effects of stock corrections and housing slumps, you need only look at the stock market corrections in 2015 and 2018. Both stock market shocks were reactions to events in the US and globally.  The extended stock sell-off during 2015 was a reaction to China’s currency devaluation as a result of their low GDP as well as poor economic data that came from the EU.  The steep equities decline that happened during August through September of that year was bad timing for the housing market, as it occurred when the fall market was gearing up.  Consumer confidence dropped and home buyers were concerned about home values. As a result, home sales slowed during the fall of 2015.

Moving forward, February 2018 is one of the most volatile trading months in recent history.  That month saw two of the largest daily losses of the Dow Jones Industrial Average (both over 1,000 points).  The market correction was due to Fed rate increases and concerns of inflation.  The stock market correction occurred before spring home buyers were out in full force, so the short-lived event had minimal effect on home sales.  Although home prices continued to post gains, existing home sales declined the second half of the year after an active spring and summer.

Are stock corrections and housing slumps connected?

This month’s stock market one-day plunge was likely tied to tariffs, trade and currency wars.  The large decline occurred after China devalued its currency so as to make its consumer goods cheaper in the face of increasing tariffs.

Regardless of the impact of equities, it’s important to point out that home sales have been inconsistent throughout the year.  A July 23rd NAR press release indicated that existing home sales are 2.2 percent lower than last year.  Chief NAR economist Lawrence Yun stated, “Home sales are running at a pace similar to 2015 levels – even with exceptionally low mortgage rates, a record number of jobs and a record high net worth in the country…”   Although it may feel like we are repeating the housing cycle of 2015, it’s for different reasons.  Like then, home sale inventory is low and home buyers are anxious about increasing home sale prices.  However, differences include low mortgage rates, high consumer sentiment, and a stronger economy. 

Although the overall effects of current stock volatility on the housing market may be minimal, equities corrections are typically harsher on upper bracket and luxury homes.  Demand for starter homes will remain high, while upper tier homes will have to adjust pricing.  Yun stated “Imbalance persists for mid-to-lower priced homes with solid demand and insufficient supply, which is consequently pushing up home prices…”

Although stocks rebounded the next day, we really don’t know yet if this is the beginnings of stock correction or a one-day event, so there is no way to gauge an immediate effect on home buyers.  However, A July 17th NAR report indicated that foreign home buyers have been affected by a slowing global economy and low US home sale inventory.  The NAR Profile of International Transactions in U.S. Residential Real Estate 2019 indicated a 36 percent decline of foreign investment in U.S. residential real estate from last year.  It’s likely that foreign investment may further erode as a currency war develops.

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/08/27/stock-corrections-and-housing/

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Does a shutdown affect home sales?

shutdown
Home Sales (infographic from nar.realtor)

There hasn’t been this much anxiety about a government shutdown since October 2013.  Back then, the government was “shutdown” for sixteen days.  Of course, when the federal government “shuts down,” it’s really a partially interrupted.  A majority of government operations continue.  But even a partial government shutdown has the potential to affect home sales.

Since only a portion of government employees get furloughed during a shutdown, there is always confusion about which agencies are affected.  Back in 2013 many home buyers were jittery about getting their FHA and VA loans processed so they could settle on time (the FHA is a part of HUD, while VA mortgages are guaranteed by the Department of Veteran Affairs). Additionally, many industry insiders were unsure about the impact a government shutdown would have on the recovering housing market. 

Today we have some idea how government housing programs, specifically mortgages, will be affected during this time because most federal agencies publicly post their shutdown contingency plans. 

FHA’s 2013 shutdown contingency was focused on maintaining consistency in the housing recovery.  The contingency plan stated “The Office of Single Family Housing will endorse new loans under current multi-year appropriation authority in order to support the health and stability of the U.S. mortgage market.  Approximately 80% of FHA loans are endorsed by lenders with delegated authority.  The remaining 20% are endorsed through the FHA Homeownership Centers, leveraging FHA staff with a contractor that works on-site.

The current FHA contingency is confident that most FHA loans will be unaffected.  However, there is a warning that an extended shutdown can impact home sales.  HUD’s Frequently Asked Questions in the event of a Government Shutdown, statement on FHA’s operations states:


“Because we are able to endorse most single family loans, we do not expect the impact on the housing market to be significant, as long as the shutdown is brief. With each day the shutdown continues, we can expect an increase in the impacts on potential homeowners. home sellers and the entire housing market. A protracted shutdown could see a decline in home sales, reversing the trend toward a strengthening market that we’ve been experiencing.

VA loans may be better positioned.  It is widely acknowledged that the Veteran Affairs learned from the government shutdowns that occurred in 1995-96. During that time, “Loan Guaranty certificates of eligibility and certificates of reasonable value [appraisals] were delayed.”  However, because VA funding includes “advance appropriations,” a majority of the VA’s operations will continue during a federal government shutdown (including mortgages).  The VA’s contingency plan indicates that in the event of a government shutdown 95% of VA employees will be fully funded or required to perform “excepted” functions.

Will a short-term federal government shutdown affect the housing market?  Probably not.  VA loans are expected to continue without much issue.  However, certain HUD functions required for FHA mortgages could be limited, but not expected to cause delays in the short-term.

However, an extended shutdown has the potential to affect home sales.  Consider that FHA’s mortgage market share increased to approximately 17 percent in 2017 (compared to about 13 percent in 2013).  Significant FHA settlement delays could occur in long-term, which would surely have an impact on the housing market.  However, considering that home sales have dropped off since the summer, and the market is typically slow during this time of year, the effect on housing will probably be negligible. 

Original published at https://dankrell.com/blog/2018/12/23/shutdown-affect-home-sales

By Dan Krell. Copyright © 2018.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Buyer and seller attitudes about real estate market

Economists are officially pessimistic about the housing market.  This is the general sentiment following another month of declining home sales.  Experts are pointing to a number of factors for the slowdown, including increased interest rates and housing affordability.  But what are home buyer and seller attitudes about real estate? The National Association of Realtors’ most recent Housing Opportunities and Market Experience survey hints at a busy spring!

Economic attitudes about real estate market

attitudes about real estate
Attitudes about real estate market (infographic from nar.realtor)

An October 19th NAR news release (nar.realtor) reported that September’s home sales were the weakest in several years.  The nationwide trend affected all regions.  NAR chief economist Lawrence Yun stated:

This is the lowest existing home sales level since November 2015…A decade’s high mortgage rates are preventing consumers from making quick decisions on home purchases. All the while, affordable home listings remain low, continuing to spur underperforming sales activity across the country.”

First-time-home-buyers are finding the housing market increasingly challenging.  This segment’s participation needs to be strong for a healthy home sales.  September’s low thirty-two percent first-time-home-buyer participation is attributed to rising interest rates and home prices.

But low housing inventory is also an issue.  September’s housing inventory decreased to 1.88 million existing homes available for sale (from the 1.91 available during the previous month).  NAR President Elizabeth Mendenhall stated:

“Despite small month over month increases, the share of first-time buyers in the market continues to underwhelm because there are simply not enough listings in their price range.”

Economists at Fannie Mae believe that the housing market will continue to disappoint.  In an October 18th press release (fanniemae.com) Fannie Mae Chief Economist Doug Duncan stated:

“Our expectations for housing have become more pessimistic. Rising interest rates and declining housing sentiment from both consumers and lenders led us to lower our home sales forecast over the duration of 2018 and through 2019. Meanwhile, affordability, especially for first-time homebuyers, remains atop the list of challenges facing the housing market.”

But what do economists really know about the future?  Let’s hear it directly from the consumer!

Home buyer and seller attitudes about real estate

NAR’s Housing Opportunities and Market Experience survey tracks opinions from renters and homeowners about homeownership, economy, and the housing market.  The release of their third quarter 2018 survey indicates that sixty-three percent of respondents strongly or moderately believe that it’s a good time to buy a home.  Although optimism is somewhat diminished from the second quarter’s survey, there continues to be a positive sentiment about buying a home.  The survey’s positive sentiment continues even though a majority of respondents believed that home prices will continue to increase in the immediate six months.  Additionally, a majority of respondents believe that qualifying for a mortgage may be an obstacle to a home purchase.

The survey also concurs with other metrics indicating high consumer sentiment for the economy.  In light of the recent slide in home sales, NAR’s recent Housing Opportunities and Market Experience survey reveals a near-record high of sixty percent of households believe that the economy is improving.”  Adding to the strong sentiment is the survey’s increased monthly Personal Financial Outlook Index, which indicates that respondents believe that their financial situation will be better in six months.

The survey also indicates a record high of home sellers who believe it is a good time to sell a home.  But given the seasonal decline of housing inventory, it is likely this will translate to a surge of home listings in the spring.  The added inventory combined with high consumer sentiment will boost the housing market. So sayeth the consumer.

By Dan Krell    
Copyright © 2018.

Original located at https://dankrell.com/blog/2018/11/01/attitudes-real-estate-market/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.