Is a Real Estate Crash Looming in 2021?
We’ve been asked this question over and over, is a real estate crash looming in 2021. Let’s get it out of the way; the United States housing market is far from crashing. We would say the facts show that it has been a critical factor in our economic recovery.
We See No Real Estate Crash Looming in 2021.
We have seen record-low mortgage interest rates, which have helped spur higher prices for investors. The economy has also seen improvements concerning jobs, improving confidence in the resale marketplace, especially for first-time buyers.
Existing-home sales have jumped to levels not seen in 15 years. Pending sales, mortgage applications, and construction new start data are all looking strong.
While we mentioned that the low-interest rates we’ve seen are a strong driver for the market, the market also experienced a short supply with slow growth. The shortage has resulted in steady price appreciation, which offsets the benefit the market sees from lower interest rates, which could pressure buyers, as stated by Sam Khater from Freddie Mac. Mr. Khater said, “A new year, a new record low mortgage rate! The forces behind the drop in rates have been shifting over the last few months, and rates are poised to rise modestly this year. The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential home buyers during the spring home sales season.”
Now, the Fed has shown no interest in raising interest rates anytime soon, so there is a bit of a conflict of opinion. However, homeowners are seizing the opportunity to refinance to today’s historic low rates.
What’s Fannie May Say ABout A Real Estate Crash Looming in 2021?
Consumer surveys during the pandemic have been hard to predict. Fannie Mae’s (HSPI) or Home Purchase Sentiment Index typically helps us understand and evaluate buyer and seller behavior. It gives us some indications into intentions, attitudes toward the market, as well as market perceptions. While the index is down since the pandemic, it has recovered significantly past few months due to intense home purchase activity.
However, half of the index’s key statistics have decreased due to consumers reporting pessimism related to home buying and future interest rate expectation. Moreover, in our opinion, they show optimistic views of the home-selling front and have favorable opinions on selling conditions and home valuations. But there are mixed opinions regarding job concerns and the market’s effects on household incomes keeping pace with rising home prices.
Freddie Macs Senior Vice President Doug Duncan said, “The HPSI appears to have peaked for now as consumers continue to consider how COVID-19 impacts their ability to buy or sell a home.”
How Does The Fed Weigh In On The Potential of a Crash?
Microeconomic data from the Federal indicates that regardless of expectations concerning income levels being flat and slow earnings growth expectations, growth in spending expectations over the coming year increased to its highest level in the last four years. This bodes well for saying there will be no real estate crash looming in 2021.
As of the end of 2020, median inflation expectations increased by 0.2% to 3.0% forecasted for the next year and 0.1% to 2.8% predicted over the next three years.
The index showed that median home prices across all regions, except the NorthEast region, decreased by 0.1% to 3.0%.
Median earnings growth predictions remain flat at around 2.0%, below 2019’s 2.3% average.
The mean unemployment data shows the expectation that unemployment claims will increase over the next year, however slightly.
Median household income growth expectations also stayed flat at around 2.1%, in contrast to 2019’s average of 2.8%.
Financial situations, when compared to last year, remain unchanged. However, with respondents forecasting that their financial situation may deteriorate, there is more pessimism, with less expectation for improving their financial situation.
Lastly, the mean probability for stock prices to be higher over the next year decreased by 2.3% to around 38.5%, the lowest since mid-2019.
Where Does Zillow Data Analysis Stack Up?
Zillow reports that home valuation is growing and should accelerate in the coming year. They say we’ll continue to see continued increases in sales volume and that mortgage rates will remain low, and new home starts have increased. https://www.zillow.com/research/daily-market-pulse-26666/
Home prices increased by over 4% over the last five months of 2020.
Zillow reported that November saw a 1.1% monthly increase based on Zillow’s Home Value Index in November. They say this as the most robust one-month appreciation rate since they started recording this data in 1996.
Because we are experiencing increases in demand for homes, increased home values, and robust sales volume, Zillow predicts that we will see healthy market conditions for real estate investors and buyers in 2021.
Their forecast for 2021 shows a 10.3% increase in home values over the next twelve months.
Sales volumes should remain elevated for 2021 at a predicted clip of 6.9 million sales, the most we’ve seen in over 15 years.
Mortgage rates dropped recently because the Fed reaffirmed that it has no plan to increase rates.
What Does Abbey Mortgage Think and How Can We Help!
We believe that 2021 will be a good year, but there will be challenges. Shortages of inventory will significantly affect the ability of investors to find investment deals. The market conditions will drive investors to be more aggressive, jumping on these deals quickly to avoid competition. You can also read our article, Is 2021 A Good ear To Invest In Real Estate. This article covers some of the same data but provides some more of our thoughts on what we see as a strong market.
The wholesale marketplace has seen an increase in activity as investors are looking to avoid real estate fees to increase profitability. The wholesale market place can be great, but it can also be fraught with fraud and impropriety. We urge our investors to due diligence for these deals, but we have funded a ton of wholesale deals for investors, so there are good deals to be had.
The bottom line is, 2021 is looking healthy, and the potential for a profitable year is looking good. There are indications that there could be some bumps in the road, but unless things change radically, there are no real indications of a significant shakedown in the markets.
Abbey Mortgage is committed to helping real estate investors stay ahead of market conditions, which is why we are offering this information. Our opinion should be taken as that, our opinion. However, we’ve shown you data that should help you come to your conclusion.
Already an Investor or Ready to Get Started Investing?
When you are ready to invest in a property, and you need cash fast, don’t forget us. We are a private lender focused on loaning money to Colorado real estate investors. We will lend money on pretty much any property type as long as it is for investment purposes, including construction, commercial, multi-unit, multi-property, fix-and-flip, fix-and-hold, bridge loans, and more.