8/30/2021 Housing and Economic Update from Matthew Gardner

 

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market. 


Hello there!  I’m Windermere Real Estate’s Chief Economist, Matthew Gardner, and welcome to the latest episode of Mondays with Matthew.

Today I wanted to take a look at the several housing related data releases that came out in August, and I am going to start off with the new home sector and the July numbers for housing permits and starts.

 

 

New home permits – and here I am referring to single-family permits – fell by 1.7% (or roughly 18,000 units) in July to an annualized rate of 1.048 million units and have been heading backwards since March.

But I always like to put things into perspective and you can see here that although we have seen a pullback over the past few months, the trend has actually been heading higher since we emerged from the financial crisis in 2011.Of course, COVID had a very pronounced impact on permit activity, but it bounced back rather impressively, that is until the parabolic increase in lumber and other costs really started to hit builders hard. 

 

A bar graph and a line graph, both titled "Single-Family Home Starts." The bar graph show number of starts in the thousands on the y-axis, from 600 to 1,400 and dates on the x-axis from July 2019 to July 2021. Year-over-year in July, the number of starts went from 887,000 in 2019, to 995,000 in 2020, to 1.11 million in 2021. The line graph shows the number of starts in the thousands from 0 to 2,500 on the y-axis and years 2005 - 2021 on the x-axis. In 2005, the number of starts was around 4 million, hitting a low point in 2009 at around 500,000, returning to over 1.5 million in 2021.

 

And the slowdown in permits obviously impacted housing starts which dropped by 4.5% – or 52,000 units – to an annual rate of 1.11 million.

Starts fell across most regions, with the exception of the west which rose by 0.9%. Declines were led by the Northeast (-6.3%), followed by the Midwest (-2.3%) and the South (-2.0%).

But again, for perspective, you can see that the longer term trend is still improving, but I am afraid not to the degree needed to address the massive housing shortage that the country faces.

If you have watched these videos for any length of time you will know that I like to look at homes under construction as opposed to housing starts – which many do not – as I believe it offers a better gauge of the market that permits or starts data. And for those who might not be aware of the difference between housing starts and houses under construction, a home is technically started if a foundation has been poured, but it does not mean that vertical construction has started, but homes under construction show just that.

 

A bar graph and a line graph, both titled "Single-Family Homes under Construction." The bar graph shows the number of homes in the thousands the y-axis, from 400 to 750 and months on the x-axis from July 2019 to July 2021. The bar graph shows that in July 2019 there were 524,000 homes under construction, 517,000 in July 2020, and a peak of 689,000 in 2021. The line graph shows homes under construction in the thousands on the y-axis, from 200 to 1,200 and years on the x-axis from 2004 to 2021. In 2004, there were 800,000 homes under construction, a low of roughly 200,000 in 2012, and back up to over 600,000 in 2021.

 

And the number of homes actually being built rose by 1.5% in July to an annual rate of 689,000 units, and that is 33% higher than the same time a year ago.

All regions other than the Northeast – which dropped by 1.6% – saw the pace of vertical construction rise versus June with the South leading the way with a 2.7% increase. This was followed by the Midwest which rose by 1.1%, and the West saw a more modest increase of 0.5%.

Again, when we look at a longer timelines, the growth is actually rather impressive, but, again, it still falls well short of demand.

So, what I see in this data is that the pullback in housing starts was not a surprise, given that permitting activity (which is a leading indicator for starts) having fallen in each of the prior three months. But despite this, the overall pace of new homebuilding actually remains relatively healthy, with the six-month moving average of homes under construction above the pre-pandemic trend at a little more than 655,000 units.

Although rising material costs, a significant shortage of qualified labor, and affordability challenges are all still keeping builders awake at night, I believe that the fundamentals for homebuilding remain solid, thanks mostly to an improving labor market backdrop and still exceptionally low inventory levels.

Additionally, a recent easing in mortgage rates, and a significant pullback in lumber prices which have fallen sharply since peaking in mid-May and are now back to pre-pandemic levels, also provide support to growing new construction activity.

 

Two line graphs, titled "Single-Family New Homes For Sale in the U.S." and "U.S. Single-Family New Home Sales." The "New Homes For Sale" line graph shows the number of homes in thousands on the y-axis, from 240 to 380 and months on the x-axis from July 2019 to July 2021. In July 2019 there were roughly 330,000 new homes for sale, while in July 2021 there was a high of over 360,000. The "New Home Sales" line graph shows the number of homes in the thousands on the y-axis from 400 to 1,100, and months on the x-axis, from July 2019 to July 2021. In July 2019, there were around 600,000 new home sales, a low of under 600,000 in April 202, and a high in January 2021 of nearly 1 million.

 

Moving on to new home sales in July and it was a bit of a mixed bag. As you can see here, the number of new homes for sale continues its upward trend – which bottomed out last Fall – and rose by 5.5% versus June and is up by over 26% from a year ago.

Now, this may sound to be great news but as I dug though the data, I saw a different story. You see, the jump in listings was driven by a record rise in homes for sale that have yet to be built.

In fact, the number of houses for sale that have yet to break ground accounted for almost 29% of total inventory. Why is this? It’s because many builders are very cautious about the market given expensive raw materials as well as limited land supply and construction workers.

 

A map showing the single-family U.S. home sales by region. In the west, there were 215,000 homes sold, a 14.4 % one-month change. In the midwest, there were 71,000 homes sold, a negative 20.2% change. In the northeast there were 22,000 homes sold, a negative 24.1 % change. In the southeast, there were 400,000 homes sold, a 1.3% one-month increase.

 

On the sales side of the equation, contract signings were up by 1% versus June to a seasonally adjusted annual rate of 708,000, but that is down by 27% from a year ago.

Last month’s gain in new home sales was driven by a 1.3% rise in the populous South and a 14.4% jump in the West, but sales plunged 24.1% in the Northeast and were 20.2% lower in the Midwest.

There can be no doubt that affordability is becoming an increasing issue in the new-home market. The median sale price is up almost 18% from its pre-pandemic level, which is a touch lower than the run-up in sales prices in the existing-home market, but still enough to deter potential homebuyers.

And cost is another factor – in addition to COVID-19 – that is accelerating the migration to suburban markets and metro areas in lower-cost states such as Arizona, Utah, Texas and Florida. But, by contrast, new home sales have weakened in areas where population growth has slowed, in part due to an outflow of residents seeking more affordable real estate, lower taxes and other lifestyle advantages. It will be very interesting to see if this is a trend that continues as we head into 2022.

 

Two line graphs titled "NAHB U.S. Housing Market Index" ad "Components of the HMI." The housing market index graph shows numbers from 0 to 100 on the y-axis and months from August 2019 to August 2021 on the x-axis. The index was at just below 70 in August 2019, dipped to a low of 30 in April 2020, hit a peak of 90 in November 2020, and was back to roughly 75 in August 2021. The HMI line graph shoows numbers from 0 to 100 on the y-axis and months from August 2019 to August 2021 on the x-axis. There are thrre lines: single family sales in orange, expectations in grey, and traffic in navy blue. All three follow the same shape, though traffic has stayed roughly twenty points below sales and expectations, bottoming out in April 2020 and peaking in November 2020.

 

Moving on – the National Association of Homebuilders published their Index of Builder Sentiment in August, and the data rather echoes the numbers that we have just been discussing.  You can see that sentiment in the single-family market has been easing gradually in recent months, but it remains well above the 50 level, suggesting that more builders are seeing the market as good, rather than bad, even if the current index is at its lowest level in 13 months.

And when we look at the components of the index, sales conditions fell five points to 81 and the component measuring traffic of prospective buyers also posted a five-point decline to 60. But the gauge charting sales expectations in the next six months held steady at 81.

As we have talked about, builders are facing significant obstacles and this is impacting the pace of new development. According to Freddie Mac, the U.S. housing market is 3.8 million single-family homes short of what is needed to meet the country’s demand and in order to catch up, builders would need to construct between 1.1 million and 1.2 million single-family homes a year to meet long-term demand but, in truth, the start rate would need to be even higher to shrink the existing deficit that we are currently experiencing.

And with more demand than new supply, what happens? That’s right, buyers turn their attentions to the existing home market and that is a neat segue into the final dataset that dropped this month, and that’s the existing home sales numbers for July.

 

Two line graphs titled "Inventory of Homes For Sale in the U.S." and "Y/Y Change in New U.S. Listing." The inventory graph shows the number of homes for sale in the millions on the y-axis, from 1.0 to 4.5 and each December from 1999 to 2020 on the x-axis. Inventory was around 2 millin i nDecember 1999, peaking at nearly 4 million in December 2007, and down to just above 1 million in December 2020. The Y/Y graph shows the percentage changes on the y-axis from negative 100 percent to 60%, and months from March 2020 to July 2021 on the y-axis. In March 2020, the year-over-year change was around +10%. It dipped to below negative 40% in April 2020 and didn't resurface above 0% until December 2020. Peaking in April 2021 at +40%, the y/y change is hovering close to zero as of July 2021.

 

It was pleasing to see that, for the 5th month in a row, Inventory levels ticked higher and, unadjusted for seasonality, were measured at 1.32M units, but I like to look at the seasonally adjusted number and that came in at a still respectable 1.0246M units.

I also like to look at the number of new listings which gives a better view on the market – and as you can see here, they are up year-over-year and that is allowing sales to accelerate.

You see, the inventory number that NAR puts out represents the number of homes for sale at a set date in the month; however, new listings show the total number of homes that came on the market during that month and if a sale is agreed upon in the same month that it comes to market, then it is not included in the overall inventory number.

 

Three line graphs, titled "Existing U.S. Home Sales," "U.S. Single-Family Home Sales," and U.S. Condo/Co-op Home Sales." The existing sales graph shows the number in millions on the y-axis from 3 to 7 and months on the x-axis from January 2012 to March 2021. Sales were at roughly 4.5 million in January 2012, bottomed out at roughly 4 million in May 2020, and peaked at nearly 6 million in October 2020. The single-family home sales graph shows sales from 200,000 to 550,000 oon the y-axis and months from January 2019 to July 2021 on the y-axis. Sales were at just above 350,000 in January 2019, dipped to 300,000 in May 20-20, and returned to nearly 450,000 in July 2021. The condo / co-op sales remained around 50,000 from January 2019 to January 202, dipped to below 30,000 in May 2020, and rose to roughly 60,000 by September 2020, staying consistent until a slight drop off in July 2021.

 

And because new listing activity is still pretty robust, it has allowed sales to tick back up as you can see here. On a seasonally adjusted, annualized basis, sales came in at 5.99M – up for the second month in a row but still well below the numbers we saw last Fall.

On a month-over-month basis, single-family home sales rose by 1% to almost 442,000, but multifamily sales dropped by over 10%, but were still up by 15% from a year ago.

 

Three line graphs titled "Median Sale Price of U.S. Existing Homes," "Median Sale Price of Single-Family Homes," and "Median Sale Price of Multifamily Homes." The median sale price graph shows prices from $180,000 to $380,000 on the y-axis and January dates from 2015 to 2021 on the x-axis. From January 2015 to January 2021, the median sale price has increased from roughly $200,000 to $359,900. Over those same dates, the median sale price of single-family homes graph shows an increase from roughly $200,000 to $367,000, while the multifamily homes graph shows an increase from roughly $200,000 to $307,100.

 

Home prices took a little breather in July – dropping by 0.8% month over month – but are still 17.8% higher than seen a year ago.

Single-family home prices also dipped by 0.8% to $367,000 – but are up by 18.6% from a year ago and multifamily sale prices dropped by 1.3% to $307,100 but were up 14.1% from July of 2020.

 

Three line graphs titled "Months of Inventory" The first one shows single-family and multifamily units. From January 2012, to January 2021, the graph shows an overall decrease from roughly 7 months of inventory to 2.6. The second graph shows just single-family homes decreasing from roughly 6 months of inventory to 2.6 over those same dates, while the third graph showing condo and co-op homes shows a drop from over 7 months of inventory in 2012 to 3.0 in January 2021.

 

Even though we saw modest increases in listing inventory, the market is still far from balanced. At the existing sale pace, there is only 2.6 months of supply, well below the 4-6 months that is considered balanced, but certainly better than the 1.9 months we saw back in January.

The same was seen in the single-family arena which also showed 2.6 months of supply and things were slightly better in the condo and co-op world where there is currently 3 months of inventory.

As I went through the report in more detail, there were a few more nuggets worthwhile mentioning. Although it is true that inventory levels are somewhat higher – which is certainly a good thing – but the market remains remarkably tight.

For example, for every offer accepted on a home in July, there were 3.5 additional offers; half of all offers made in July were above the list price and, because the market remains highly competitive, the number of all-cash offers rose from 16% a year ago to 23% in July. And with 89% of homes going pending in the same month that they were listed, and the average days on market coming in at just 17, we are still quite far away from experiencing a normal housing market.

Well, I hope that you have found this month’s discussion to be interesting. As always if you have any questions or comments about this topic, please do reach out to me but, in the meantime, stay safe out there and I look forward the visiting with you all again, next month.

Bye now.

The post 8/30/2021 Housing and Economic Update from Matthew Gardner appeared first on Windermere Real Estate.

7/26/2021 Housing and Economic Update from Matthew Gardner

 

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market. 

 


 

Hello there!  I’m Windermere Real Estate’s Chief Economist, Matthew Gardner, and welcome to the latest episode of Mondays with Matthew.

This month, we are going to take another look at forbearance activity across the U.S.  Now I know that we have talked about this subject several times over the past year, but it is worthwhile to look at it again if only for the fact that the program stopped taking new applications for forbearance at the end of June.

So, let’s take a look at where we were when the forbearance program started and where we are today.

 

 

And as you can see from this first chart, the situation today is a vast improvement from where we were last May when there were more than 4.76 million homes in the program. For context, that meant that more than 9% of all homes with a mortgage were in the program last May – a huge number.

But the latest data from Black Knight Financial shows that – by mid-July of this year – the number had dropped to just over 1.86 million homes, or roughly 3.5% of houses with a mortgage.

This is certainly a pretty impressive recovery, as it means that 2.9 million homeowners left the program between May of 2020 and mid-July 2021.

 

Power point slide titled “Forbearance Plans by Lender” showing a graph of active forbearance plans. The x-axis shows the dates from April 16 2020 to July 6 2021 and the y-axis shows the number of active plans starting at 0 at the bottom and increasing by 500,000 each line with 2.5 million at the top. Three lines represent the different lenders, light blue is Fannie/Freddie, Orange is FHA/VA, and green is Other. They all follow a similar trend, peaking in May and June or 2020 and steadily decreasing until they reach their lowest in July 2021 to the far right of the graph. The source is Black Knight Financial.

 

And when we look at the makeup of mortgages in forbearance, the largest share came from loans backed by Fannie Mae and Freddie Mac – not surprising given the size of their mortgage portfolio – with, at the peak, just shy of two million homes in the program – roughly 7.2% of their total portfolio.

But that number has now dropped to 582,000 or just 2.1% of loans outstanding.

Loans backed by the FHA or VA also peaked last May at about 1.53 million or 12.6% of their portfolio.

But today that number has dropped to 755,000 or 6.2% of the mortgages they hold.

And finally, loans showed here as “other” represent private label securities or portfolio loans, and it’s interesting to see that their numbers didn’t peak until late June when just short of 1.25 million homes – or 9.6% of their portfolio – were in the program.

However, today that number had dropped to 524,000, or 4% of mortgages backed by these entities.

 

What I see from the slides that we have looked at is that the number of active forbearance plans continues to fall; however, the pace of the drop has certainly slowed over the last quarter or so.

After seeing a monthly drop of 12% in April – as a large volume all plans hit their 12-month review date – the pace of improvement has since slowed to just 5% over the past 30 days.

Although the number of homes in forbearance is still higher than I would like to see, fewer than 4% of all mortgages are in the program and we haven’t seen this level since April of 2020, just as the pandemic was kicking in.

 

Power point slide titled “Scheduled Forbearance Plan Expirations” with a bar graph. The x-axis of the bar graph shows months, starting with February 2021 and ending with December 2021. The bars show that a majority of the plans are expiring in June, July, August, September and October. The source is Black Knight Financial.

 

As we look forward, you can see that almost 600,000 homes currently in forbearance are coming up for review so the potential for a greater rate of improvement in the overall number of homes in the program is certainly possible – but not guaranteed.

 

Power point slide titled “Nominal & Inflation-Adjusted Home Prices” with a line graph that shows the Forbearance plans starts. The x-axis is labeled with dates from May 5, 2020 to June 15, 2021 and the y-axis has the number of plans starting at 0 and increasing by 50,000 until 300,000 at the top. There are three lines, the teal line shows the new starts, green shows the re-starts, and the light blue shows the Forbearance plans start. The teal and the light blue line closely match each other, with a peak in May 2020 and a slow decrease since then, while the green line starts low and matches the blue lines starting in September 2020 and then following the same trend from there. The source is Black Knight Financial.

 

Unsurprisingly the number of homes entering the program for the first time as well as repeat plan starts is lower than we saw last summer but again the pace of improvement has slowed. That said, overall starts are down by 3% on the month and when we combine new and repeat starts the number is 3 to 4% lower.

 

Power point slide titled “Nominal & Inflation-Adjusted Home Prices” with a line graph that shows forbearance plans removals and extensions. The x-axis shows the dates from April 21 2020 to June 15 2021, y-axis shows the number of plans starting at 0 at the bottom and increasing my 100,000 until 900,000 at the top. The blue line represents the forbearance plan removals and the green line shows the plan extensions. The green line has a clear spike in June/July of 2020 and the blue line has a clear spike in October 2020. The source of this information is from Black Knight Financial.

 

Of the roughly 460,000 homes in forbearance that were reviewed for either extension or removal from the program in the first two weeks of June, 33% left the program while 67% had the term extended.  This is a lower removal rate than we saw during the first two weeks of either April or May, but I expect to see more homeowners come out of the program, but only as long as the country continues to reopen, and that is not a certainty given the rise of the Delta and Lambda variants of the COVID-19 virus.

Power point slide titled “Nominal & Inflation-Adjusted Home Prices” with a line graph that shows the final expiration month of active forbearance plans that assumes the plans expire in 18 months. The x-axis is the plan final expiration month from May 2021 to July 2022 and the z-axis shows the number of plans from 0 to 450,000. The line spikes in September 2021 around 400,000 and then quickly goes down so that by November the line evens out in the 150,000 range. The source of this information is Black Knight Financial.

 

I actually found this chart to be very interesting. Of the more than two million active forbearance plans, approximately half are scheduled to reach their 18-month terminal expiration date in September and October of this year.

And if we take this data, and then project a fairly modest 3% monthly rate of homeowners leaving the forbearance program, it means that over 900,000 homes would exit the program in the third and fourth quarters of this year.

And with 575,000 thousand plans scheduled to expire in September and October alone – that means that mortgage services will be faced with the daunting task of having to process nearly 15,000 plans per business day during that time. It’s going to be a lot of work!

 

Power point slide titled “Nominal and Real Monthly Payment” with a pie graph that shows the current status of COVID-19 related forbearances as of June 15, 2021. 46% of the pie is orange, representing the total removed or expired plans. 26% of the pie is light blue representing the 1.863 million plans that are active because of a term extension. 18% of the pie is navy representing the 1.292 million who are paid off. 4% is green showing the removed/expired – delinquent and active loss mit. Another 3% is brown, showing the number of plans that were removed/expired because they were delinquent. And the last 3% is grey showing the plans that are active in their original term. The source of this information is Black Knight Financial.

 

Roughly 7.25 million borrowers have used the forbearance program at one time or another through the course of the pandemic and that represents roughly 14% of all homeowners in the country.

Of that 7.25 million, the chart here shows that 72% have left the plan, and 28% remain in active forbearance, but you can also see that loan performance remains pretty robust among homeowners who have left the program with 46% of them getting things squared away with their lenders in regard to missed payments, and 18% having paid off their loan in full – likely from selling or refinancing with a different lender.

You will also see that the number of borrowers in post forbearance loss mitigation is down a tad to 333,000, while those who have left forbearance but still remain delinquent and not in loss mitigation accounts for roughly 3% of total loans in the program or just 195,000.

 

So, the way I see it, although the number of homes leaving the program has certainly slowed which, quite frankly, doesn’t surprise me, I still expect further improvement as we move through the year not just because the economy continues to reopen and people are getting reestablished at work, but also because we won’t be seeing any new owners enter the program.

And finally, I want to show you what parts of the country have a high share of homes in forbearance.

 

Power point slide titled “Nominal and Real Monthly Payments” with a map of the United States of America. Each state is shaded in a color that represents how many homes are still in forbearance. Washington is green at 3.7%; Oregon is green at 3.2%; California is yellow at 4.6%; Idaho is green at 2.3%, Nevada is dark orange at 6.5%; Montana is green at 2.6%, Colorado is green-yellow at 4.3%; Utah is green at 3.9%; Hawaii is orange at 6.8%. Texas and Louisiana are the states with the most, sitting at 7% and 7.9% respectively. Note this data is from March, as State and County data suffer a 3 month delay before it’s released. The source of this is from Windermere Economics analysis of Atlanta Fed data.

 

I must tell you first off, that this data isn’t that timely – in fact these numbers are from March as the data I get at the State and County grain is subject to a three month lag.

Anyway, as you can see from this map, not all states are created equal, with the share of homes in forbearance still elevated in Louisiana, Texas and, to a lesser degree, New York State.

Out here in the West, the rate in Nevada is still high, and California and New Mexico are both somewhat higher than I would like to have seen but, as I just said, this data is a little old, and I believe that the share of homes in forbearance in both Nevada and California is lower today than you see here.

 

Given everything that we’ve looked at today, there are a couple of conclusions that can be drawn.

The first, and most obvious, is that anyone believing but there will be a flood of homes that will be foreclosed on either toward the end of this year or in 2022, is likely to be disappointed. Even if every home still in the program does enter foreclosure which, by the way, is basically impossible, the number of homes that would be foreclosed on would be minimal when compared to the fallout following the financial crisis of more than a decade ago.

And when I say that it’s virtually impossible to expect to see all homes will be foreclosed on, it’s mainly because of the remarkable run up in home values that the country has seen since 2012.

The buildup of equity that all homeowners have seen whether they bought before 2012, or even as recently as the past 2 or 3 years, suggests that if, for whatever circumstance, owners in forbearance can’t get their heads back above water, they will choose to sell their home – in order to keep the equity that they have accumulated.

A typical homeowner in forbearance has a sizeable equity in their home, with median equity of a homeowner in the program measured at just over $100,000. And this significant amount of cash in their homes would allow them to pay the bank back any missed payments, sell, and still walk away with a sizable amount of equity.

The bottom line is that have the forbearance program was needed and it can be said that it has been successful so far in warding off home foreclosures because of the remarkable impact of the pandemic.

Although it would be naïve to suggest that foreclosure rates won’t rise at all, as the forbearance program winds down, I do see them ticking higher but, given all the data that I’ve been looking at, I would be very surprised to see overall foreclosure rates rise to a level significantly above the long-term average.

Well, I hope that you have found this month’s discussion to be interesting. As always if you have any questions or comments about this topic, please do reach out to me but, in the meantime, stay safe out there and I look forward the visiting with you all again, next month.

Bye now

 

The post 7/26/2021 Housing and Economic Update from Matthew Gardner appeared first on Windermere Real Estate.

Matthew Gardner Housing & Economic Update: 02/22/2021

 

Hello there and welcome to February’s edition of Mondays with Matthew.

Well, there were a lot of housing-related data releases in the month that are worthy of discussion so let’s get straight to it. I am going to start out with the latest homeownership data that was just released by the Census Bureau.

 

 

Those of you who regularly watch my videos may remember that last year I suggested that the data may have been a little bit suspect – specifically when it came to the second and third quarter ownership rates.

Anyway, for those that didn’t see me address this, or if you have forgotten, I had a concern about the significant spike in the ownership rate that you can see here, and I suggested that it might be suspect because of the way the data was gathered during the early days of COVID. You see, the survey was done via telephone and not in person – as it usually is – because of COVID-19 restrictions and I believe that this actually led to an overreporting of the real ownership rate.

Following the massive spike we saw in the second quarter, it appears that they have found a way to more accurately gather the data and the rate has now pulled back to a level that, at least for me, passes my “sniff test”! However, even though the share of US households who own their homes did drop, it still remains above the long-term average and stands at a level we haven’t seen since 2012.

 

Line graph showing the U.S. Homeownership rate where the homeowner is under the age of 35 between 2006 and 2020.

Younger Households Continue to Buy

 

And when we drill down into the data and look at the ownership rate for Millennials – I know, I harp on about them a lot – but you can clearly see that they really are becoming homeowners in increasing numbers and the current rate of 38.5% is a share not seen since 2011 and I expect to see this number grow over the next several years.

Demographics are driving them into homeownership as they are all getting older, many now starting families and they want to own a home. I would also add that I would not be surprised to see them shift toward ownership at even faster rates if they are allowed to work from home which may lead more of them to leave expensive cities and move to markets where it’s more affordable to buy.

 

Bar graph showing age cohorts and their share of borrowing per quarter from quarter 2 2019 to quarter 4 2020. Ages 30-39 and 40-49 are consistently the tallest bars in each quarter sitting between 25 and 30 pecrent.

 

And to give you a different perspective on these younger buyers, last week the New York Fed released their report on household debt that included numbers regarding the share of mortgage borrowing by age. Well, you can see in the above graph, that younger buyers continue to account for a major share of total mortgage borrowing and are borrowing pretty substantial amounts too.

In fact, in 2020 Millennial and Gen Z households borrowed over $1.3 trillion to buy homes and that’s over 35% of total new mortgage debt on a dollar basis. Although I think it’s great to see younger households grow as homeowners and the overall homeownership rate rising, all is not as I would like to see it – especially when we break down the homeownership rate by ethnicity.

 

Bar graph showing homeownership rates for each year from 2016 to 2020 organized by ethnicity. White and non-Hispanic groups are consistently the tallest bars hitting about 70% each year. Black populations range from 41.6% in 2016 to 45.4% in 2020. Asian populations own at rates around 55-60 percent. Hispanic populations homeownership rates slowly raise from 45.9% in 2016 to 50.1% in 2020.

 

And the above report, again from the Census Bureau, showed that although the share of white households who own their homes ticked up it also showed some significant disparities with the ownership rate for black households – although up a little – still well below the levels seen with other ethnicities.

This is a long-term, and systemic issue, that needs to be addressed.

The bottom line is that the ownership rate for Black families was 25 percentage points lower than that for white families in 2020 and was even higher in the 4th quarter of the year when it almost hit 30%.

I am pleased that the Biden administration does have plans to try to address this inequality by looking to expand the ability of the Federal Housing Authority to provide mortgages and this might, if it gets approved, start to address this very significant issue. Of course, nothing will be fixed immediately, but it is a major concern and sincerely hope that, over time, this discrepancy will be addressed.

 

Table showing the population growth in 12 metro areas, ranked by absolute change. At the top is Dallas-Fort Worth-Arilington, TX at 18.5% change, Seattle-Tacoma-Bellevue, WA is ranked 7th with a 15.4% change. Denver-Aurora-Lakewood, CO is ranked 10 at 16.2% change.

 

We had a very significant data drop – again from the Census Bureau – who provided their population estimates for 2019.  The data may be old, but it is interesting all the same. This table shows the markets with the greatest increase in population between 2010 and 2019.

I will be honest with you that I was not surprised to see Texas lead the way, but it was interesting to see the greater Seattle region, Denver, and Riverside, California all make it close to the top of the list.

 

Table showing the population growth in 16 Metro areas between 2010 and 2019, ranked by percentage change. Bend, Oregon is ranked #1 with 25.3% change, Boise Idaho is ranked 2nd with 21.3% change. Fort Collins Colorado and Denver-Auroroa-Lakewood Colorado are ranked 3rd and 4th with 18.8% and 16.2% change respectively. Las Vegas-Paradise Nevada is ranked 5th with 16.1% change. Seattle-Bellevue-Kent, Washington is ranked 6th at 15.9% change and Olympia-Lacey-Tumwater Washington is ranked 6th with 14.8% change. Colorado Springs Colorado increased their population by 14.6% ranking them 7th in this table. Ogden-Clearfeild, Utah is next with a 14% change and Tacoma Washington is 10th at 12.9% change.

 

And because a couple of markets that were close to the top of the list are of interest to Windermere (as we have offices in these areas) I thought that it would be interesting to look at how some of the other markets where we have a presence are doing and the numbers are equally as impressive.

Of course, markets are of different sizes, so to balance this out, the data here shows growth in percentage terms and the numbers are again very impressive.

 

Table showing the top 16 metro areas in the Western U.S. with the most population growth between 2017 nd 2019. Greeley Colorado is the top metro area with 6.1% population growth. Bend, Oregon is 2nd at 5.9%, Boise Idaho is 3rd with 5.6%, Coeur d'Alene Idaho i 4th with 5.3% and Idaho Falls is 5th at 5.3%.

 

And when I focused on 2-year growth, well it’s again very impressive with significant increases seen in Colorado, several Idaho markets, Las Vegas, Western Washington, and Utah.

And I would also add that Greeley was number one here, but also ranked 4th nationally. Bend came in 7th, Boise 9th, and Coeur d’Alene 10th. Yes, I know that this data is old – it’s an issue I fight with every day – but I still see it as being meaningful.

Of course, I will be very interested to see the 2020 numbers as they will give us an indication as to how COVID-19 really is impacting where we choose to live, but we will have to wait for that!

 

I did read a very interesting report that was recently published by North American Moving Services where they looked at where households who moved between states moved to last year. Of course, it is not a perfect analysis, but it does give us an idea as to not just where people moved to, but where they moved from, in 2020.

 

Map of the U.S with states highlights red for states with significant outbound population and blue for inbound population. White marks states with balanced population in and out. In the West, California is highlighted red for outbound population. Idaho, Colorado and Arizona are blue for inbound population.

 

Unsurprisingly, the largest out-migration states included California – where people were mainly moving to Texas and Idaho – but there was also significant out-migration from Illinois, New York, and New Jersey.

As far as where most people migrated to, in addition to Idaho, movers were also attracted to Arizona, Colorado, Tennessee, and North and South Carolina.

Interestingly, Northeastern states make up four out of the seven states with the most outbound moves, and none of them make the top eight for inbound moves. Number one was New York which saw significant out-migration. Number 2 was New Jersey and Maryland was just beaten into 4th place by California.

But as far as the western US is concerned, – other than California – people are consistently moving in, and not out.

Also supported by the census numbers we just discussed, the number of households relocating to Idaho has been significant for the past five years and I would add that Colorado has also been in the top-10, or very close to it for the past five years.

 

Two line graphs, on the left shows the V-shaped recover of Building Permits 2019-2021. On the right shows the v-shaped recovery of Home Starts Jun 2019-Jan 2021.

 

Last week we saw the latest data on building permits and starts and although there was a softening in the number of starts in January, permit activity continues to grow significantly with single-family permits up by a massive 3.8% month over month, and 30% higher than seen a year ago. This is good news!

As far as the weakness of starts is concerned, this was primarily due to some builders who remain worried about increasing lumber and other construction material costs, as well as concerns over delays in obtaining building materials because of COVID-19 supply chain issues.

I would add that although single-family starts did drop, the number of homes under construction continued to trend higher.  And for those of you who might be wondering how new starts can drop but the number of homes being built can increase, it’s purely terminology. You see, a housing “start” is where a foundation has been poured, but it doesn’t mean that vertical construction has started.

In fact, the number of homes under construction in January was up by 1.1% on the month and is over 16% higher than seen a year ago.

 

Two line graphs showing the National Association of Home Builders Market Index. On the left shows the NAHB U.S. Houing Market Index showing a v-shaped recover between Dec 2019 and Feb 2021. On the right shows the Housing MArekt Index for Single Family Sales, Expectations, and Traffic. They all follow the same V-shaped trend with traffic lower than Single Family Sales and Expectations.

 

Last week we also got the February take on builder confidence and it was interesting to see it ticking back up as strong buyer demand helped to offset the supply chain challenges and surging lumber prices.

On the right, you will see the three components of the index which showed the gauge of current sales conditions holding steady at 90, while the component measuring sales expectations in the next six months fell three points to 80 but the gauge charting traffic of prospective buyers rising by four points to 72.

Although all are off their peak that was seen last fall, all are above 50 meaning that more builders find the market favorable than not.

So, this was a pretty mixed bag, but the Market Index numbers are more current than the permit and starts report so I will be interested to see what the February housing starts looks like – it wouldn’t surprise me to see a slight uptick in the number.

And finally, the January US housing sales numbers were released by the National Association of Realtors and, well, they were – again – record breaking!

 

line graph showing the inventory of homes for sale in the U.S. showing a downward trend from January 2021 at the height of above 2.5, and January 21 at the low very close to 1.0.

Inventory levels are still woefully low.

 

On the supply side, any hopes that we might have seen the number of listings rise in January were dashed with total inventory coming in at a measly 1.04 million homes for sale – that’s down 25.7% year-over-year and a new record low in absolute terms, but also a record percentage drop between January of 2020 and January of 2021.

Breaking it down, the number of single-family homes on the market remained static at 880,000 units, but the number of condominium listings dropped a little to 164,000 listings – that’s down from 179,000 in December.

Given the very low number of listings – and sales still very robust – there was just 1.9-months of supply – matching the all-time low we saw in December.

 

Bar graph showing the average offers for homes sold in the U.S. January 2019 is highlighted at 2.1 average, January 2020 is highlighted at 2.3, and January 2021 is highlighted at 3.7.

 

I always find this data set fascinating – and another record has been broken. For every sale that was agreed in January there were an average of 3.7 offers! That’s a massive increase from the old record of 3.5 set just the month before.

But even with record-low inventory, the number of sales remains very impressive.

 

Line graph showing the v-shaped recover of existing home sales in the U.S. with the low of the V at May 2020.

Sales would have been even higher if there were just more homes to buy!

 

Total sales of single-family and multifamily units came in at an annual rate of 6.69 million units in January. That is 0.6% higher than seen in December, and up by a massive 23.7% from a year ago. Sales of single-family homes rose by 23% to an annual rate of 5.93 million units while sales of condos rose by 28.8% to an annual rate of 760,000 units.

Now, some of you may be wondering how this can be? How can sales rise when there are so few homes for sale? And that is a very reasonable question.

You see, the number of homes for sale is the total available on the last day of the month, but sales can still increase because if a home is listed for sale and goes under contract in the same month, well it isn’t included in the inventory numbers for that month.

And in January, properties averaged just 21 days on the market with 71% of them selling within the month.

 

Bar graph of First Time Buyers at 32 and 33% in January 2020 and January 2021. Sales to Investors are at 17 adn 15 percent, All-Cash sales are at 21 and 19 percent, and distressed sales are 2 and 1 percent.

Still significant demand from first-time buyers and second home buyers.

 

And when we look at the details it was pleasing to see the share of homes that sold to first-time buyers up a little. Sales to investors – and these numbers include many second-home buyers – pulled back a little, but again, not a concern.

And finally, no surprises here – with many homes in forbearance, the share of distressed sales was just 1 percent.

 

2 graphs side by side. On the left is a line graph for the Media Sale Price of Existing Homes with the line growing from January 20 to May 20, a dip from May to June 2020, and then rising into a curve to a downward trend from October 2020 to January 2021.

 

The median sale price in January was $303,900 and that’s up by 14.1% year-over-year. Now, before you get worried about the fact that it appears that prices have plateaued, it’s actually not surprising as it’s mainly a function of seasonality, as well as the limited choice of homes to buy.

Sales of homes in the US priced below $100,000 were down 28% year over year, while sales of homes priced between $500,000 and $750,000 were up 53% year over year, and sales of million-dollar-plus homes were up by 76.7% from a year ago. Geographically, price growth was most robust in the west where they were up by 16.1% year over year. Also, $1 million-plus sales accounted for over 11% of all sales in the western US too.

As I worked through the January numbers, it remains very clear to me that housing remains a shining light as we move through this pandemic period, and I expect this to continue with 2021 being another very good year for the housing market, and home sales rising even more as a vaccine gets more broadly distributed and we reopen more of the country.

So, there you have it. My take on the January housing-related data releases.

 

The post Matthew Gardner Housing & Economic Update: 02/22/2021 appeared first on Windermere Real Estate.

Matthew Gardner COVID-19 Housing & Economic Update: 01/25/2021

 

Hello there and welcome to the first Mondays with Matthew for 2021. It’s great to be back and I hope that you all had a fantastic holiday season and are getting into the new year groove.

Well, there’s a lot of data releases to talk about today so let’s get to it. First up is the latest National Association of Homebuilders report on builder confidence.

 

 

The index slipped to 83 from 86 but, for context, any reading above 50 means more builders view market conditions as favorable than poor.

Now, as you can see, following a very impressive recovery following the start of the pandemic, U.S. homebuilder confidence has trended lower for the past 2-months but, to tell you the truth, I really wasn’t surprised to see this.

Why wasn’t I surprised?

Well, its actually rather simple. Surging COVID-19 infections in concert with increasing material costs offset record low mortgage rates.

Builders are still grappling with supply-side constraints related to not just material costs, but a lack of affordable lots on which to build, and labor shortages that are all putting upward pressure on new home prices.

It’s very frustrating for builders these days as they see very significant demand for housing – driven by cheaper mortgages as well as an exodus from city centers to the suburbs and other low-density areas as companies allow employees to work from home because of the pandemic.

Oh! Talking of work-from-home, I did see a number put out by the Census Bureau in their Household Pulse Survey that suggested that about 38% of the labor force is now working at least part-time from home. That’s a massive number.

 

A line graph from the National Association of Home Builders showing the component trends in the U.S. Housing Market over the past two years.

 

Anyway, all of the component parts of the survey trended lower with the measure of sales expectations in the next six months falling two points to 83, the gauge of current sales conditions also dropping two points to 90, and the prospective buyers index falling by five points to 68.

I am not worried by this as, even at these levels, builders are still pretty bullish about the market, and I say this because of the next dataset I’m going to talk about – the housing permit and starts report.

 

A line graph showing the number of single-family home builder permits over the past two years.

 

Even if builders were suffering from worries regarding costs. Oh! I should add that their biggest issue as far as material costs are concerned are that lumber prices have risen by 52% versus a year ago!  Anyway, this increase in cost, as well as the other issues that we have just talked about didn’t translate into slowing activity when it came to permits and starts which both surged in December.

This chart shows the number of single-family permits issued across the country and the figure rose by 7.8% between November and December to an annual rate of 1.226 million units. That’s 30.4% higher than seen a year ago. And the fastest rate seen since 2007.

 

A line graph showing the number of single-family home starts over the past two years.

 

And looking now at housing starts, well they impressed too with a 12% month over month gain to an annual rate of 1.338 million units – and that’s 27.8% higher than a year ago.

I would also note that single-family starts have increased for eight straight months now. And – given the data that we have just looked at – it’s not surprising to see a very significant jump in the number of homes under construction.

 

A line graph showing the number of single family homes under construction over the past two years.

 

Now, in case you are a little confused by terminology, I should let you know that housing starts don’t actually relate to the number of homes being built. Starts refer to lots where a foundation has been poured, but it doesn’t mean that vertical construction has commenced.  For that we need to look at the under-construction data shown here.

And the number is pleasing.  In fact, the current level of ground-up construction is at its highest level since 2007.

The bottom line is that I expect to see the number of starts and homes under construction continue to rise, and new supply of homes is likely to take some of the upward price pressures off the resale market.

In fact, my current forecast is for new home sales to rise this year to about 988,000 units.

And talking of the resale market, I know that you have all been waiting for the December existing home sales numbers and they were released last Friday.

 

A line graph showing the inventory of home for sale in the U.S. over the past two years.

 

Before we get to the good stuff, I want to start with inventory – or lack of it!

Without seasonal adjustment, the number of homes for sale in December stood at just 1.07 million homes – and that’s down 23% year over year.

For perspective, that is the lowest number of homes on record and, at the current sales place, that represents a 1.9-month supply and that’s the lowest number seen since the National Association of Realtors began tracking this metric back in 1982.

So – we know that there is nothing to buy, but what’s happening to sales?

Look at this! Pandemic-driven demand for housing sent total 2020 home sales to the highest level since 2006.

 

A line graph showing the number of existing home sales in the U.S. over the past two years.

 

Closed sales of existing homes in December increased just 0.7% from November to a seasonally adjusted annualized rate of 6.76 million units and sales were 22% higher than seen in December of 2019.

As unexpected as a global pandemic was, so too was the reaction of homebuyers. After plummeting in March and April, sales suddenly began to climb.

Total year-end sales volume ended at 5.64 million units, and that was a number far higher than I – or anyone – was predicting before the pandemic started.

COVID-19 drove buyers desire for larger, suburban homes with dedicated spaces not just for working but for schooling as well.

And I will tell you that, in my opinion, sales could have been even higher if there were just more homes to buy! I wouldn’t have been surprised, again, if we had no inventory constraints – to have seen over 7 million sales occurring last year and that would have matched the all-time high seen in 2005.

But of course, there is a price to pay when you have so much demand, and so little supply.

That’s right.  Prices go up!

 

A bar graph showing the median sale price of existing homes in the U.S. over the past two years.

 

Low supply and very strong demand continued to heat home prices with the median price of an existing home sold in December coming in at $309,800, that’s a 12.9% increase when compared with December 2019 and the highest December median price on record. I would also add that this price is only marginally below the all-time high that was seen last October.

The surge in prices really has been quite remarkable, but I am not too surprised.  Yes, demand has risen significantly, and supply has not, but much of the growth was driven by mortgage rates that have dropped precipitously since the pandemic started and are over a full percentage point lower now than they were a year ago.

I would add that part of the reason we say such a sharp increase in price is that home sales were actually very strong at the high end of the market, where there are more homes for sale.

Sales of homes in the US priced below $100,000 were down 15% annually in December, while sales of homes priced between $500,000 and $750,000 were up 65% year over year, and sales of million-dollar-plus homes were up by a whopping 94% from a year ago.

A lot of the growth in the luxury market can also be attributed to mortgage rates with jumbo rates – that spiked with the pandemic – dropping significantly and this has led sales higher.

Breaking out the single-family market from condos, sales leapt in the early summer but leveled off in the fall because of – you guessed it – a lack of homes for sale and not a lack of demand.

 

A line graph showing single family home sales and a bar graph showing median price of single-family home sales in the U.S. over the past two years.

 

In 2020, sales of single-family homes rose by 6.3% – a massive number that’s even more impressive given the fact that sales only rose by 0.5% in 2019.

And prices were, naturally on the rise too – increasing by 9.2% last year, and that’s the fastest rate we have seen since 2013, and that was when we were starting to recover from the housing bubble that burst causing home prices to collapse value buyers jumped in causing prices to rise significantly.

Looking now at condos, we see a somewhat similar picture with the annual rate of sales coming in at over 700,000 units but, interestingly, 2020 total condo sales were actually 0.3% lower than we saw in 2019.

 

A line graph showing condo and co-op sales in the U.S. and a bar graph showing their median sales price.

 

What is happening here is a drop in demand for urban multifamily units with buyers able to work remotely. And this is also reflected by lower price growth than we saw in the single-family market.

As we move forward, I am still positive about the multifamily arena, but we are already seeing softening in demand and price in some market across the nation and here I am directly referring to San Francisco here in the West, and New York and Boston back East.

In as much as we will continuing to see short-term demand and price issues in many urban markets, it doesn’t mean that the overall condo market is going to collapse.

In fact, I think that once we get back to “normal” we may well see demand increase again and, if we see prices start to drop, I expect demand to rise even further as buyers who had previously been priced out of many of these large cities see that they can now afford to buy.

So, there you have it. My take on the January housing related data releases.

As always, if you have any questions or comments about the topics I have discussed today, feel free to reach out – I am only an e-mail away!

In the meantime, thank you for watching, stay safe out there, and I look forward to visiting with you again, next month.

Bye now.

The post Matthew Gardner COVID-19 Housing & Economic Update: 01/25/2021 appeared first on Windermere Real Estate.

Matthew Gardner COVID-19 Housing & Economic Update: 12/7/2020

 

Hello and welcome to this rather special episode of Mondays with Matthew. I’m Windermere Real Estate’s Chief Economist, Matthew Gardner.

 

Now, if you wonder what’s special about this particular episode, well the answer is twofold.

 

Firstly, I started these videos at the onset of the COVID-19 epidemic back in March and this is the 35th episode of Mondays with Matthew – where has the time gone?  Anyway, it will be the last one for this year and I wanted to take just a moment to thank all of you for taking time out of your busy schedules to watch my videos. It makes this economist very happy to think that you are still getting value out of my musings.

 

But there’s another reason that I am excited and it’s because, after many, many late nights poring over spreadsheets, I am now ready to share my 2021 US housing forecast with you so, without further ado, let’s get to it!

 

 

I’m starting off with my mortgage rate forecast.

 

As you will all be very aware, we have spent the entire year watching mortgage rates break record lows almost every week which, along with other factors, has helped drive housing demand significantly higher, but how low can rates go?

 

Well, my forecast suggests that rates will likely bottom out in the current quarter but that said, I do not anticipate them rising much as we move through 2021.

 

Economists' Forecasts are in a Fairly Tight Range

 

Now, I always like to see how my forecasts compare to others, so I spoke with a few housing economists across the country to see where they were regarding rates, and – as you can see – we are all in a pretty tight range for next year. I will tell you that my friends over at Fannie Mae were pretty defensive about their very optimistic forecast – I guess that we will see.

 

And looking further out – where my crystal ball fogs over just a little – the brave souls who are putting out forecasts for 2022 are showing rates not moving much higher even then, with Fannie Mae at an average of 2.9%, Wells Fargo at 3.1% and the Mortgage Bankers Association a little higher at 3.6%.

 

The bottom line here is that we are all pretty confident that although rates will start to rise, the increase will be modest, and I personally don’t see it impacting housing demand at all.

 

Yields Should Rise Next Year

 

And to explain why we will see rates rise, 30-year fixed-rate mortgages are pretty directly correlated with the yield on 10-year treasuries, and you can see here that my forecast shows these rising – albeit modestly – next year and, naturally if this occurs, rates will follow.

 

But there are 2 reasons that might stop rates rising – at least by too much, even if Treasury yields do head higher.  First is the COVID-19 vaccine. You see, if it takes longer to distribute, or if we chose not to take it, then the economy could take another dip and, if that happens, treasury yields will likely pull back, and rates could drop again. But I remain hopeful that this will not be the case.

 

And second is the Fed.  As long as they continue to buy mortgage-backed securities, rates are actually insulated from rising treasury yields.

 

Home Sales Will Grow Significantly Next Year

 

OK – on to sales, and here I am specifically looking at existing homes – I will address new homes shortly.

 

My forecast is for sales this year to have risen by 3.9%, but sales in 2021 should be up by 6.9%, and that’s a level we haven’t seen since 2006.

 

But in order for sales to rise to this extent, we need more inventory, and I do expect to see more listings next year and it will likely be, at least partially, due to COVID-19 with some household’s new ability to work from home removing the need to live close to their offices.  But there will be others who will move simply because their current homes just aren’t set up for remote working.

 

Although I see a lot of homeowners moving due to work-from-home I believe that a lot of them will not move that far away.  You see, the theory that we will all be working from home full-time is – in my opinion – likely overblown – and I would contend that a lot of them will end up blending their workweek with some days at home and some days at their offices and, if I am correct, I see many households still staying within reasonable proximity of their workplaces.

 

Prices Will Also Rise - But at a Slower Rate

 

Turning our attention now to sale prices, well this year has been very impressive so far and we should see sale prices in 2020 ending up 7.4% higher than we saw in 2019. Now, this is quite remarkable, and I say this because I took a look at the 2020 forecast, I put out last year and I was forecasting price growth closer to 4% than 7%.

 

But COVID-19 changed all that.  Mortgage rates dropped, households decided for several reasons to move and, in concert with a historically low level of homes available to buy, prices have risen significantly.

 

Now – and as I have said for years – there must always be a relationship between incomes and home prices, and mortgage rates dropping can only allow prices to rise by so much.

 

And, along with other factors, it’s partly due to affordability issues that I see prices rising by a more modest 4.1% in 2021.

 

New Home Starts Will Also Grow

 

OK – looking now at the new home market – and for the purposes of this discussion I am just looking at the single-family market – so far this year we have seen a significant jump in new home sales and this very robust demand has encouraged builders to start construction of more homes and my forecast for single-family housing starts shows them rising by 8% this year, but next year I’m seeing starts up by a very significant 16.4%.

 

This is good news for several reasons, the biggest of which is that more new construction will add to supply and that should take some of the demand and price pressure off the resale market.

 

New Home Sales Will Jump Next Year

 

And with more starts, I expect to see sales rising with an increase of 21.5% this year and a further 18.7% in 2021. Notably, this will put new home sales at a level again that we haven’t seen since 2006.

 

But I do have one concern regarding the new home market, and my worry is all about cost.

 

Builders want to do what they do best, and that’s build homes, but they have to reconcile the costs to build a home, which are extremely high today, with the prices that would-be buyers can afford.

 

Now I see them managing this issue by looking to areas where land is cheaper and where there is still demand from buyers who, as we just talked about, are now looking at markets further away from major job centers.

 

The bottom line is that the new construction market will see very solid gains next year.

 

And finally, it would be remiss of me if I weren’t to address the one thing that is troubling a lot of brokers – and their clients –and that’s forbearance.

 

Homes in Forbearance are Significant, But Don't Worry Me

 

Although we saw a modest uptick in active forbearance plans earlier last month, I think it’s important to put things in perspective.

 

Despite small increases in the number of homes we saw entering the program, the number of active forbearances is still down by 8% (or 246,000 homes) from the end of October.

 

In total, as of November 30, there are 2.76 million homeowners in active forbearance plans and that represents approximately 5.2% of all mortgages but again, for perspective, the number of owners in forbearance is down by almost 2 million from the peak back in May – that’s a drop of 42%.

 

So, let’s talk about this for a bit.

 

As is human nature, there are some out there predicting that the housing market is going to crash again purely because of the number of owners in forbearance – all 2.76 million of them –will be foreclosed on when forbearance ends next spring, and this flood of foreclosed homes will lead to a spike in supply and this will lead prices to drop in a manner similar to 2008.

 

I get the theory, and I guess that at face value you might say that it seems plausible, but is it?

 

Although there’s no getting around the fact that foreclosures will rise next year as forbearance terms end, will it really be that dramatic?I think not.

 

There are several reasons why I’m not overly pessimistic about this. Although I see foreclosures rising next year, I actually expect the numbers to be very mild when compared to the carnage we saw between 2008 and 2010.

 

Why do I think this? Well, the housing bubble burst for very different reasons than we are currently experiencing. Back then there was a frenzy of reckless lending, irresponsible borrowing, and the unbridled speculation that did nothing more than set the housing market up for a crash. And crash it did. Home prices collapsed, and millions lost their homes.

 

But, back in March of this year – when COVID-19 really kicked in – homeowners were actually in a very good place.  Credit standards were still very tight, down payments were significant, and the housing market, along with the economy as a whole, was extremely healthy and that’s the difference.

 

The COVID-19 pandemic has primarily hit renters, but it has impacted a lot of homeowners too and, as much as I am very sorry to say that we will see a rise in mortgage defaults and foreclosures but as the housing market muscles its way through the current economic downturn, I see foreclosures forming more of a trickle rather than a flood.

 

And, to support this, my colleagues over at ATTOM Data Solutions are currently forecasting more than 200,000 homeowners are likely to default next year but, if there is a longer-term Coronavirus related slowdown in the economy, the foreclosure count could get as high as 500,000 homes.

 

But as dramatic as their projections may seem, it’s worth noting a few things.

 

One. During the Great Recession, foreclosure filings spiked with 1.65 million American homes going into foreclosure in the first half of 2010, but this is well above the most pessimistic forecasts for foreclosures next year and even if defaults rise dramatically, they’ll still come in well below the levels we saw following the bursting of the housing bubble.

 

Two.  As I talked about earlier, home prices have risen steadily since 2012 and homeowners have built up large reserves of equity. This is the total opposite of the situation we saw in 2008.

 

And it’s because home values have been rising, a lot of borrowers in forbearance will be able to escape foreclosure by simply selling – we know that there is more than enough demand and they will sell to make sure that they get the equity out of their homes rather than to potentially lose it because of foreclosure.

 

Third. Lenders really have no stomach for a repeat of the foreclosure crisis we saw back in 2008.

 

Today, I am seeing lenders positioning themselves to use a more-cooperative, less-punitive approach to delinquent borrowers and that they will do a better job of keeping people in homes.

 

And finally.  Many, but not all, of the owners in forbearance, will not enter foreclosure because they will be able to catch up on their past-due amounts by paying more each month and some may be allowed to add the past-due amount to the end of the mortgage by lengthening its term.

 

The bottom line is that the housing market, and homeowners, are in a much better position today than they were back in the bubble days. Homeowners today have far more options to avoid foreclosure, and equity is surely helping to keep many afloat. Put it this way, even if today’s rate of foreclosures doubles, it will still only hit a mark that’s more in line with a historically normalized range.

 

Ultimately, I’m not concerned that we will see the housing market collapse because of forbearance.

 

And finally, a few more nuggets to think about.

 

Even if we ignore concerns over forbearance, there are still some talking about a housing bubble purely because prices have risen so rapidly over the past several years but I, along with my colleagues, just don’t see it.  It is true that prices have been rising at above-average rates, but fundamentals are still in place.  As I mentioned earlier, borrowers are well qualified, and they have solid equity in their homes.

 

But, as I have shown you, price growth is set to slow and I think that, because of this slowdown in price increases, there will surely be some homeowners who will think that the market has collapsed just because real estate agents aren’t telling them what they want to hear as far as the value of their home is concerned. What they need to understand is that the market isn’t collapsing, it’s just normalizing.

 

Sellers have had the upper hand for a very long time now, and many may have forgotten what a normal housing market looks like.

 

In the early days of the pandemic, it is true that buyers did gravitate toward the suburbs and I know this because 57% of buyers who bought between April and June of this year chose suburban locations and this compares with 50% before the pandemic. But it’s hardly the exodus from cities that some had speculated, and I would also note that there was even a small uptick in urban home purchases in that 3-month period – 12% before the pandemic, and 14% after. Meanwhile, sales actually fell a little in small towns and rural areas in the same timeframe, so I do not anticipate a massive move to the countryside.

 

Yes!  You’ve heard this from me for a long time now. First-time buyers will be a major force again this year – and for years to come – brokers need to figure out how to work with them. Their numbers are only going to grow.

 

Condos – Hmmm this is interesting.  Although I don’t see the condo market collapsing across the country – although I do see significant issues in markets like Manhattan and San Francisco – I am seeing inventory levels rise fairly significantly as opposed to single-family homes for sale whose numbers continues to drop but, for now, there still appears to be demand as sales are higher too. My concern is really in regard to the urban condominium market. You see, for many, the primary reasons to buy a downtown condo are twofold.  Convenient access to work, and lifestyle.

 

Well, some won’t have to live close to work if they are working a majority – or all – of the time from home and secondly, if we lose some of the lifestyle reasons to live in a city – restaurants, retail, and the like, well that takes away some of the rationale behind buying a downtown condo.

 

There’s no need to panic yet but I will be watching urban condo markets to see if demand continues to keep up with rising supply.  If it doesn’t, then we may well see prices softening.

 

And finally, well done, you made it through 2020!

 

So, there you have it.  My 2021 US housing forecast.

 

I really hope that you have found this video – and the ones I have published before – of use to you and your clients.

 

As always, take care out there, and remember to wear your masks.

 

In all seriousness though, it really has been an honor to speak with you all this year and, hopefully, we will meet again –in person this time – at some point next year.

So, between now and then, stay safe, have a wonderful holiday, and here’s to a great 2021 for all of us.

 

Bye now.

The post Matthew Gardner COVID-19 Housing & Economic Update: 12/7/2020 appeared first on Windermere Real Estate.