Matthew Gardner: What You Should Know About Today’s Real Estate Market

Understanding the housing market is a matter of analyzing its many data sets. In a recent piece for Inman News, Windermere Chief Economist Matthew Gardner offered his perspective on recent U.S. pending sales, new-home sales, and existing-home sales figures.

If you’re involved in the housing market, and I assume that most of you are, you know very well that this is a numbers business. All of us are surrounded by housing-related data day in and day out, and it can become a little overwhelming at times — even for an economist like myself.

Well, today I’d like to take a few minutes to talk about just a couple of the datasets that I think are particularly important to track and offer you my perspectives on them.



There’s no doubt that the ownership housing market really was a beacon of light as we moved through the pandemic period. Even though the market paused last spring as COVID-19 hit the nation, it snapped back remarkably quickly, unlike many other parts of the U.S. economy that are still suffering today.

This is important, as housing is a significant contributor to the broader economy. For example, last year, spending on the construction of new homes, residential remodeling and real estate brokers fees amounted to around $885 billion or 4.2 percent of gross domestic product.

But the real number is far greater than that when you add in all spending on all household services. The total amount of money spent on housing in aggregate was around $3.7 trillion or 17.5 percent of the country’s economy.

So, we know that the housing market is a very important part of our economy, but can that number continue to grow? Let’s take a look.



The chart below shows the number of single-family homes for sale going back to 1983. As you can clearly see, there’s never been a time — at least since records were kept at the national level — where they were fewer homes for sale at any one time.

And this is a problem because the biggest issue the market faces today is that demand for homes is far exceeding supply.

A report I track very carefully — and I am sure that many of you do, too — is the National Association of Realtors pending home sales index, which is shown below.

Although it’s not a perfect indicator, as the survey only covers about 20 percent of all homes that go pending, it does give us a pretty good idea as to what the future may hold given that, all things being equal, about 80 percent of pending homes close within roughly two months, making it a leading indicator.

Line graph titled “Pending Home Sales Index” that shows the 12-month percentage change, seasonally adjusted. Along the x axis are months from January 2019 to March 2021. On the y axis is percentages from -40% to +30% with a line through the graph marking 0%. The line shows a significant decreased in April 2020 from 10% in February 2020 to -35% in April 2020, then a quick recover peaking around 25% in August 2020. Source NAR.

You can clearly see the massive pull back last spring because of the pandemic, but this was very quickly followed by a very significant surge.

It pulled back again last winter, but I would suggest that this was more a function of lack of homes for sale than anything else. However, look at the March spike.

Now, you might be thinking that this is a great number, but I would caution all of you not to pay too much attention to year-over-year changes, as they can be deceiving. You see, the index jumped because it was being compared with last March when the pandemic really started.


Closed sales

When we look at closed sales activity, it actually lines up pretty well with the pending home sales index, which fell in January and February. This is reflected in the contraction in closed sales that we saw this spring. And if the index is accurate, it suggests we may see closed sales activity pick up again over the next couple of months.

Line graph titled “Existing Home Sales” in millions seasonally adjusted. Along the x axis is months from January 2021 and April 2021. On the Y axis is numbers between 3.0 and 7.0, increasing by half points. The line shows a sharp decrease in April 2020 and a quick recover with a peak at 6.7 in October 2020. Source is NAR.

Of course, any time where housing demand exceeds supply, there is a solution — and that would be to build more homes.

But as you can see here, though more homes started to be built as we emerged from the financial crisis, the number today is essentially the same as it was two decades ago and has been declining for the past two years.

Two line graphs next to each other, the slide is titled “New Homes for Sale” on the left is Single Family New Homes for Sale in the US in thousands, seasonally adjusted. Along the x axis is years from 2000 to 2020 and on the y axis is numbers from 0 to 700 in increments of 100. This graph shows a peak between 2006 and 2008 just under 600, with a sharp decline after that, the lowest point in 2021. With some recover, the line peaks again in 2020 just above 300. On the right is New Homes for Sale by Stage of Construction. The light blue line is not-started, the green line is completed, and the navy blue line is under construction. Not-started is consistently the lowest number between 2000 and 2018, but in 2019 it rises above the green line. The navy blue line is consistently on the top of the graph, which a small dip that goes below the green line in 2009. Source: Census Bureau.

That’s significant, as the country has added over 12 million new households during the same period which has further fueled demand for housing. If there are no new homes to buy, well, that does one thing — and that’s to put more focus on the resale market, which has already led to very significant price increases.


New home market

But this particular report also offers some additional data sets, which I think give more clarity to the state of the new home market.

Before the housing market crashed, you can see that a majority of new homes that were on the market for sale were being built at that time, but — as the housing bubble was bursting — the market dropped, and the share of homes that were finished and for sale naturally rose.

But what I want you to look at is the far right of the chart above. You see the spike in the share of homes for sale that have not yet been started?

Well, given the massive increase in construction costs builders have, understandably, become far more cautious and are trying to sell more homes before they start to build them to mitigate some of the risk. It also tells me that they see demand that is not being met by the existing-home market and are looking to take it advantage of this.

When we look at new home sales, you can see that the trend, in essence, follows the number of homes for sale, but I would caution you on a couple of things.

Two graphs side by side, the slide is titled “New Home Sales” on the left is a line graph of us single family new home sales in thousands. On the x axis is dates from 2006 to 2020 and on the y axis is numbers from 0 to 1,600 in increments of 200. The line shows the peak in 2006 at 1,400 with a sharp decline afterwards until it bottoms out in 2010 at around 200. From there there’s a slow recover, with a peak in 2021 at around 1,000. On the right is a clustered column graph titled New Homes Sold by Stage of Construction. The green bars represent not started, the light blue columns represent under construction, and orange shows the completed projects. On the x axis is months from January 2020 to April 2021 and on the y axis I percentages from 20% to 45% in 5% increments. From Jan 2020 to July 2020 the orange bars representing completed are the highest bars, but from August 2020 to March 2021, the blue bars are the highest showing that homes under construction were the most common new homes purchased. Source: Census Bureau.

Firstly, these figures do not represent closed sales, as the Census Bureau, which prepares this dataset, considers a home sold once it has gone under contract. This makes sense, as a home can be sold before it has even broken ground. In essence, it’s more similar to NAR’s Pending Home Sales Index than anything else.

Look now at sales by stage of construction on the right. You can see that, as the pandemic was getting started, new homes that were ready to move into were what buyers wanted, and that accounted for over 42 percent of total new sales in April.

As the supply of finished homes dropped, homes that were being built took the lion’s share of sales — as they have done historically. However, look at April. The greatest share of sales — 37.7 percent — were homes that hadn’t yet been started.

Again, this supports the theory that builders remain cautious given ever-escalating costs, but it also shows that buyers’ needs are not being met by the resale market, so they were willing to wait, likely a considerable time, for their new home to be built.

Of course, the couple of datasets I’ve shared with you today are just the tip of the iceberg when it comes to the housing-related numbers you should all be tracking, as they can tell a story that can impact everyone involved in the development or sale of homes.

Mortgage rates

In addition to the data we have discussed today, you should be well versed in mortgage rate trends, demographic shifts, building permit activity and the economy in general — and you need to understand all these numbers at a local as well as national level.

For the vast majority of households, buying a home will be the most expensive thing that they will ever purchase in their lives. And given memories of the housing crash, as well as the significant increase in home prices that we’ve seen since last summer, it’s now more important than ever for you to be able to share your knowledge with your clients and be able to advise them accordingly.


Windermere’s Chief Economist, Matthew Gardner, often contributes to local and national publications with his insights to the housing market. Recently he offered his analysis of home sales numbers to Inman News, this is a repost of that video and article

For more market news and updates from Matthew Gardner,

visit our Market Update page.

The post Matthew Gardner: What You Should Know About Today’s Real Estate Market appeared first on Windermere Real Estate.

5/24/2021 Housing and Economic Update from Matthew Gardner

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. In this month’s special episode, Matthew takes a deep dive into the data that helped him shape his Op-Ed piece for Inman News. 


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

Why special? Well, regular viewers of my videos will know that I generally take this opportunity to give you an update on the housing related numbers that came out in the month, but this time we are going to go in a different direction.

A few weeks ago, I was asked by the real estate publication, Inman, to pen an op-ed that would offer a counterpoint to this one which they had just published.

Well, I think that many of you will agree that it’s a pretty direct position and – judging by the comments I read following its publication – was certainly one where readers were very firmly on one side of the fence or the other!

Those of you that know me at all will probably have already figured out my position on this. I went ahead and crafted my response and I do take a different view on the matter!

As I am sure that some of you don’t have access to Inman’s website, I thought it might be interesting to share with you the reasoning behind my belief that we are not about to enter a period of declining home values; but even if you are an Inman subscriber and did read the piece, I hope that you will still find this video worth watching as I will also be sharing some of the background data with you that was not included in the article, as well as to give some more context on the subject.


Home Prices Out-Pace Wages

But to start with, I must acknowledge the fact that home prices have been rising at a significantly faster pace than wages for several years now and that may well be part of the reason why some people in the industry – and some perspective home buyers – are getting concerned.


As you can see here, since 2012, average weekly wages have risen by a little more than 30%, with the average annual gain of around 2.3% which is actually not that bad. Wages also rose by over 6% last year, which sounds great, but in reality, it was because of the pandemic.  You see, most of the job losses were in low-wage sectors which skewed the data upward – but I digress.

Anyway, during the same time period, you will see that even as wages rose, home prices have taken off and wage growth has simply not kept pace.

I often think about a quote from the Spanish philosopher and novelist, George Santayana, “Those who cannot remember the past are condemned to repeat it” which I think just about says it all!



So, what we are going to do today is to take a look back and run through a brief timeline of events that led to the 2007 crash, and then look at where we are today and how it is totally different which leads me to speculate that there is no real reason why we should expect to see a widespread, systematic decline in home prices in the foreseeable future.


Line graph titled “The Case Shiller National Index” the line steadily increases a little bit between January 1991 and January 1999, but starts to increase more in the 2000’s, peaking in January 2006 and is starting to decline in January 2007 and 2008.The Source is the S&P Case Shiller.


This first chart shows the Case Shiller National Home Price Index level over time and we’ll be using it as a base for this part of the discussion.

If you are not familiar with Case Shiller, its what’s known as a repeat sales index – which means that it looks at the change in sale prices between when a home was purchased and when it was sold and is a great way to look at changes in home prices.

GIF of Case Shiller Index Timeline of the Housing Market from 1990 to 2008


Let’s start all the way back to the early 1990’s.


In ’92, Congress enacted Title 13 of the Housing and Community Development Act and they did this to give low- and moderate-income borrowers better access to mortgage credit via loans supported by Fannie Mae and Freddie Mac.


And in ‘95, President Clinton introduced a National Homeownership Strategy which had a very aggressive goal of raising homeownership levels from 65.1% to 67.5% by the year 2000 – that would be a rate of ownership in America that had never been seen before.

But this could only realistically happen if Fannie & Freddie significantly increased the share of mortgage funds going to lower income households. The Housing and Community Development Act required them to dedicate 30% of their portfolio to lower income borrowers – but the Clinton plan meant that they had to raise that share to 42%.

And it started out rather well with almost 2.8 million new homeowners created between 1993 and 1995 – and that was double that seen during the prior two years.

And because of the increase in demand that would come from greater loan volume, Fannie and Freddie moved to an automated underwriting process to speed up loan approvals. Interestingly, this then became an industry norm – but in going to an automated model, all they really did was to significantly relax the underwriting approval process.


Now moving on to the very end of the decade, in November of 1999, Congress passed, and President Clinton signed, the Gramm-Leach-Bliley Act which, amongst other things, lifted most of the restrictions that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company that were prohibited by way of the Banking Act of 1933 – otherwise known as the Glass-Steagall Act.

Now this is important as – in essence – banks could now underwrite and sell banking, securities, and insurance products and services which included, guess what, mortgage products.


In 2000, the dot-com bubble burst. Something those of us here in Seattle remember all too well – and one of the major consequences of this was that investors moved away from the equity markets and, instead, turned their attention to the real estate market.


By the start of 2001, the country was heading into a recession, and even though unemployment remained close to a 30-year low, the Federal Reserve wanted to stimulate borrowing and spending, so they started to lower short-term interest rates very aggressively.


As you can see, over the next 3-years the market jumped with home prices rising by 7% in 2002 and 7.5% in 2003 as more would be home buyers found easier access to mortgage credit not just from Fannie or Freddie – but all of the other institutions that could now get into the game following the passing of the Gramm Leach Bliley Act.

And because of its success, the push to expand homeownership that had started under President Clinton continued under President Bush, and he introduced a “Zero Down Payment Initiative” that allowed – under certain circumstances – removal of the 3% down payment rule for first-time home buyers using FHA-insured mortgages.


Well, the Bush and Clinton administrations saw their housing goals achieved with the homeownership rate increased steadily, peaking at 69.2% of households in 2004.

Ownership rates and rapidly rising home prices were driven by one thing.

Home buyers were consuming – with relish I might add – rare mortgage products with strange-sounding names such as Alt-A, sub-prime, I-O – as in interest-only -, low-doc, no-doc, or the classic NINJA loans, NINJA being an anacronym for “no income, no job, no assets”. There were also 2–28 and 3–27 loans; liar loans; piggyback second mortgages; payment-option and even “pick-a-pay date” adjustable-rate mortgages.

What could possibly go wrong!


And by 2005, sub-prime mortgages had risen from 8% of total loans made in 2003 to 20%, with about 70% of sub-prime borrowers using the hybrid 2/28 and 3/27 ARMs I just mentioned, and these were mortgages with low “teaser” rates for the first two or three years, and then they adjusted periodically.

And when you add in Alt-A mortgages, the total share of just these two mortgage products rose from 10.4% in 2003 to 39.4% in 2005.

Many people chose their financing poorly. Some clearly wanted to live beyond their means and, by mid-2005, nearly 25% of all borrowers across the country were taking out interest only home loans which gave them a lower  monthly payment, as they weren’t worried about paying down the principal because home prices were going to continue to skyrocket forever – right!!?


By the end of 2006, a full 90% of all sub-prime mortgages were ARM’s and with a doubling of the sub-prime share, about $2.4 trillion of new sub-prime and non-prime mortgages were used to buy homes.


Well, in 2007 over $1 trillion worth of ARM’s were about to reset, and this is what really took the market down.

Why? Well, back in July of 2004, the Fed started to raise interest rates, and with all the ARM’s starting to reset, a massive number of homeowners just couldn’t afford their new payments and they started to default in droves.


The ultimate outcome was that in 2010 over 2.2% of all homes in America were foreclosed on – that almost 2.9 million homes – in just one year.


So what makes it different this time around?

That’s the history lesson, so let’s compare and contrast where we are today with what happened back then.

Two graphs side by side, titled together “Rate would have to rise significantly” the graph on the left is a line graph showing the 30-yearmortgage rates from 1990 to 2007. From 2000 to 2004, there’s a red arrow that highlight the decline in the number of mortgages. On the right is a bar graph that shows the annual change in U.S. Home sale prices changed in median existing home sale price from 1997-2005. There’s a steady increase from 1999 to 2004, and in 2005 there’s a share increase to 12.2% from 8.3% in 2004. The sources are Freddie Mac and NAR.


As we discussed earlier, the Fed started to lower interest rates following the dot-com bust and that flowed down to the mortgage market and rates also started to drop but it wasn’t just the Fed – investors did what they usually do during periods of economic uncertainty – they moved a lot of money into bonds, and this has a far more direct effect on mortgage rates.

By 2004, mortgage rates had dropped to a record low.

And as rates dropped, look what happened to prices – they started rising as buyer purchasing power rose, but that’s far from the only reason why home prices rose so significantly, but we will get to that later.


Two graphs side by side with the title at the bottom Rates would have to rise significantly. On the left is a line graph that shows the 30-year fixed mortgage rates from 2008 to now. There are two red arrows highlighting decreases, one from 2008 to 2021 that drops from above 6% to between 3%and 3.5%. The other red arrow highlights July 2018 to November 2020 that falls from 5% to just above 2.5%. On the right is a bar graph showing the annual change in U.S. home sale prices change in median existing home sale price from 2012-2020. Most of the graph sits below 8% except 2013 which is at 11.2% and 2020 is at 9.1%.


So, moving forward in time, you can see that rates dropped again as the financial crisis was taking hold and the country was entering a recession and rates dropped even more staring in 2019 as the Fed became concerned about inflation, slowing global growth, and trade wars.

And they offered further supported to the housing market at the onset of the pandemic by aggressively buy bonds which effectively lowered mortgage rates even further.

So far, you may be thinking, “well, its clearly the same as last time”, but I’m afraid that you’d be wrong.

You see, although sale prices surged in 2013 – realistically because home prices over corrected on the downside following the bubble – average annual price growth since 2013 has been slower we saw pre-bubble.

The median sale price rose by an average annual rate of 7.6% between 2000 and 2005, but between 2014 and 2020, the pace of appreciation was a full 1.5 percentage points lower.


Two area graphs side by side with the title underneath that says inventory of homes for sale. On the left the chart shows the inventory of homes for sale in the U.S in millions; single-family & multifamily units; seasonally adjusted. There’s a sharp increase from 2005 to 2007, then a decrease after that but the graph never goes back down to pre-2005 numbers. On the right the area graph shows the inventory of homes for sale in the US in millions from 2012 to 2021. The graph shows a slow decrease over time, with sharp changes between 2012 and 2013 and again from 20119 to 2021.


I am going to talk more about mortgages shortly, but it’s important to touch on another significant difference between the 2000’s and now and that’s housing supply.

As you can see here, starting in 2001, inventory levels rose and peaked just as the bubble was about to burst. Why? Well, do you remember me telling you about the surge in unique mortgage products – specifically ARM’s?

1 in 10 borrowers in ‘05 and ‘06 took out “option ARM” loans and one-third of ARMs originated between 2004 and 2006 had “teaser” rates below 4%. Therefore, we started to see people try to sell before the rate reset and this led to the growth in listings. But how does that compare to what we’ve seen over the past several years?

The number of homes for sale has been sliding since the spring of 2011 and is currently at the lowest levels since data on total US listings started to be gathered back in 1999. Ultimately, the basic economic laws of supply and demand are working today. Prices rise on scarcity of product and lower cost of financing. Both of which we see here.


Two bar graphs next to each other with the title of the slide reading at the bottom inventory of homes for sale. On the left is the inventory of existing homes for sale quarter average comparing Q1 2005 and Q1 2021. The bar for Q1 2005 rises to between 2 and 2.5 million. The bar for Q1 2021 sits just above 1 million. On the right is a bar graph that shows the supply of new housing in millions for US housing permit issuances. The blue bars represent single-family permit and orang represents multi-family. In 2005 the blue bar for single-family homes sits at just above 1.6 million and the orang bar for multi-family sits between .4 and .6 million. In 2020, blue bar is almost half the blue bar in 2005, sitting at just under 1 million, and the orange bar sits around the same between .4 and .6 million.


This shows the average number of existing homes that were for sale in the spring of 2005 – a date I chose as it was before the mortgage ARMS’s started to reset – and this spring.

Clearly a significant disparity. Now some of you may say that its lower because of the pandemic, but even if I were to use the spring of 2020 as a comparison – before the pandemic took hold – listings would still be 36% lower than in 2005.

But new demand can be met by building more new homes. Almost 1.7 million single family permits were issued in 2005 when the market was booming, but fewer than 1 million single family permits were issued last year.

The multifamily side is a little more complex as we cannot distinguish between condominiums and apartments, but I would suggest that although the number is pretty close to identical, the difference is that new multifamily permits last year were focused on the apartment world, whereas they were mainly condominiums back in 2005.

With low levels of existing and new homes for sale today, prices have risen significantly, but the difference I see is that during the pre-bubble years prices were climbing more as a function of speculation rather than real demand as there were significantly more homes available back then.


Line graph that shows the average home ownership tenure in the united states. A sharp increase between 2009 and 2014 shows that people are living in their homes almost double as long as they were in the early 2000’s. The source of the data is Attom Data Solutions.


And another reason why housing supply has been so weak is that we simply aren’t moving as often as we used to.

Speculation drove home buyers to move on average every 4 or so years in the early to mid 2000’s; but look at more recent years. Mobility has dropped and we now live in our homes for twice as long as we used to and this limits housing turnover which, with the relatively low levels of new construction we just discussed, also puts upward pricing pressure on housing as supply levels stay low.


Two bar graphs next to each other, the slide title is household formations. On the left is a bar graph titled Total Households in the United States in thousands. The graph shows data from 2000 to 2006 and has a red trend line showing the increase of the bars. The line has text that says 3.9 million new households formed. On the right is another bar graph showing the total households in the united stats from 2014 to 2020. The red trend lines shows that 10.5 million new households were formed in that period. Data source is the Census Bureau.


On the demand side of the equation, Census data shows that 3.8 million new households were formed in the United States between 2000 2006 which is a decent enough number.

But between 2014 and 2020, we added 10.5 million new households.

Now of course not all newly formed households become home buyers. I totally understand that. But we know that the long-term average homeownership rates in America is around 65% so it’s easy to extrapolate the numbers and conclude that demand for ownership housing continues to far exceed supply.


Two bar graphs next to each other, the title of the slide is household formations. On the left is a bar graph that shows the U.S. homeownership rate in 1995, and 2000 to 2006. 1995 is highlighted in light blue, and the bar graph represents 64.8% whereas the other bars are all above 67%, with a top number in 2014 at 69%. On the right is a bar graph that shows the US homeownership rate in 2010 and from 2014 to 2020. 2010 is highlighted with a light blue bar that shows 66.9% whereas the rest of the bars trend under 65% expect for 2020 which has a sharp increase from 2019 at 66.6%. Data source is the Census Bureau.


And talking about the ownership rate, some think that it is rising too fast – and that is proof that a speculative bubble is in place but look at this.

The pre-bubble period saw the ownership rate start to skyrocket, ultimately hitting an all-time high in 2004.

The rate was still elevated in 2010 and did not reach a bottom until 2016, but even though it has risen since, it remains well below the level seen in ’04.

Oh! If you are wondering about the 2020 spike, well I would take that with a pinch of salt. I say this as the Census Bureau survey in the first two quarters of last year were significantly affected by COVID-19 and I believe that the ownership rate was overestimated.

In fact, data for the first quarter of this year shows the ownership rate at 65.6% which is more realistic.

So, I think this clearly shows that although we continue to add households, we have not seen a speculatively driven spike in the ownership rate similar to the one we saw as the bubble was forming.

Well so far, we’ve looked at the supply of homes and how that has impacted the increase in housing prices; how demand continues to rise as more new households are formed; and we also covered the impact mortgage rates has had on home prices.


The Financing Side of the Equation

I promised you earlier that we would be returning to the financing side of the equation, because it is clear to me that it was the chief culprit behind the housing bubble.

Two graphs next to each other, the slide is titled Existing Home Prices. On the left is a line graph titled Media FICO Score for Home Buyer. There’s a significant drop in credit quality in the early to mid 2000’s. On the right is a column graph titled Mortgage Origination Volume by Risk Score. Red shows less than 620, green shows between 620 and 659, green is between 660-719, purple is between 720 and 759, and navy is 760+. Those with less than 620 were borrowing 15% of all funds used to buy homes, while prime borrowers were just below 24%. Today is a much different picture with those with less than 620 scores only make up 1.4% while those with more than 760 make up 73%.


This chart shows the median credit – or FICO score – for home buyers approved for a loan and you can see the significant drop in credit quality that occurred in the early to mid-200’s.

But look at where we are today. The median credit score is now 788, and when we look at the numbers in a little more detail it’s even more remarkable as by early 2007 the riskiest borrowers – those with credit ratings below 620 – were borrowing 15% of all funds used to buy homes while prime borrowers we’re just below 24%.

But, again, look where we are today. The sub-prime share of mortgage borrowing has shrunk to just 1.4% while prime borrowers are now at a very solid 73%.

The bottom line is that credit quality is remarkably high, and not at all like the pre-bubble period.


Two graphs next to each other, the slide is titled Months of Inventory & Offers Per Sale. On the left is a bar graph titled ARM Share of Residential Mortgage Originations. The graph shows a jump of 12% to 35% between the years 2001 and 2004, while since 2012 up until April 2021 the numbers have hovered between 3% and 7%, most recently hitting 3.1% in April 2021. On the right is a line graph titled ARM Share of Residential Mortgage Originations, showing an overall downward trend from January 2018 through March 2021, the percentage peaking in November 2018 at just above 9%. Both graphs use data for FHA, VA, and Conventional Purchase Loans.


Earlier we discussed that between 2001 and 2007, mortgage debt doubled and much of this growth came via risky mortgage products – many of which were adjustable-rate mortgages that offered the buyer significantly lower monthly payments.

ARM’s accounted for 35% of all mortgage borrowing in 2004 but the current share is far lower, which should quell any concerns that there might be a wave of ARM’s resetting that could impact the market.

And as you can see here, the share has dropped precipitously, but has levelled off over the past few months before rising modestly in March.


Two graphs next to each other, the slide is titled Credit Is Tight Even As Owners Are Not Over Leveraged. On the left is a line graph titled Housing Credit Availability Index. It shows an overall downward trend from Q1 2000 to Q1 2020, with a spike between Q1 2004 and Q1 2007. One the right is a line graph titled Loan-to-Value Ratio, which is the ratio of total debt to value. It shows data from Q1 2000 to Q2 2020. The percentage began at roughly 40% in Q1 2020, peaking at around 55% between Q4 2009 and Q4 2012 before declining steadily, coming in at just below 35% in Q2 2020.


This is data from the Urban Institute that I use regularly. It’s their Housing Credit Availability Index (HCAI) and it calculates the percentage of owner-occupied home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date, and I like this as their methodology also weights for the likelihood of economic downturns as well.

A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, therefore making it harder to get a loan while a higher percentage suggests that lenders are willing to tolerate defaults and are taking more risks by making it easier to get a loan.

Lenders were all good taking risks in the bubble days but are certainly looking at things very differently now.

The bottom line is that even if the current default risk doubled, it would still be well within the pre-crisis standard of 12.5% that was seen between 2001 and 2003.

And this chart shows loan to value ratios – as the bubble was forming the ratio went up as buyers were getting over leveraged but look where it is now.  Well below pre-bubble levels.

Again, tight credit and significant equity puts us in a very different place than we were in the 2000’s.


My Forbearance Forecast

Two graphs next to each other, the slide is titled Mortgage Forbearance. On the left is a bar graph titled Mortgages in Forbearance, representing the total residential homes in forbearance. The numbers between April 23 of 2020 and May 4 of 2021 show a peak of over 4.5 million homes in May 2020, settling to just above 2 million in May 2021. On the right is a line graph titled Share of Home Loans in Forbearance, showing data for the same time period as the graph on the left. It shows a peak of around 9% in May/early June 2020, settling to around 4% in May 2021.


I am sharing forbearance data for one reason and it’s because some brokers have told me that they have clients who are thinking about waiting to buy as they believe that homes in forbearance will end up in foreclosure and the growth in supply could lead home prices to drop across the board, or at the very least allow them to pick up a home on the cheap.

But as you can see, the number of homes currently in the program is down by over half from its May 2020 peak – and that equates to 2.6 million homes.

In fact, even if all the homes still in the program did actually end up in foreclosure, it would still only represent a fraction of the nearly 10 million homes that were foreclosed on due to the housing bubble bursting.

And when we look at the share of total homes in forbearance, it peaked at just over 9% but is now knocking in the door of 4% and with over 250,000 more homes about to hit the end of their forbearance period, I anticipate that the numbers will drop further later month.

So why am I not worried that a large share of these homes will be foreclosed on? This is why.


Two graphs next to each other, the slide is titled Single-Family Home Prices. On the left is a line graph titled Homeowner Equity, showing the dollar amount in trillions, not seasonally adjusted. Between Q1 2000 and Q1 2020, the amount rose from just over $5 trillion in Q1 2000 to $21.1 trillion in Q1 2020. One the right is a line graph titled Share of Equity Rich Properties, showing the percentage of homeowners with more than 50% equity. Between Q1 2014 and Q1 2021, the percentage rose from just below 20% in Q1 2014 to 31.9% in Q1 2021.


In the first quarter of this year homeowners were sat on over $21 trillion in equity – a truly massive figure.

You can see the buildup of equity as the housing bubble was forming and then it contracted through the housing crisis; however, since 2012 home equity levels have more than doubled.

My friends over at Attom Data Solutions estimate that, in the first quarter of this year, almost one in three homeowners in America had more than 50% equity in their homes – that’s almost 18 million homeowners.

And this tells me that a lot of owners in forbearance who just cannot get back on the right path still have the option to sell their homes in order to keep the equity that they have – after the bank is made whole, of course – rather than go through the foreclosure process.

And further support comes from the folks over at Core Logics who recently put out a paper suggesting that about 42% of all owners in the forbearance program bought their home before 2012 and they have, unsurprisingly, built up a sizeable chunk of equity in their homes, with median equity – even after they cover any missed payments – of almost $100,000.

Of course, it’s reasonable to say that this may all sound good, but what about owners who didn’t buy a long time ago and therefore have less equity.

Well, their data shows that 43% of owners in forbearance bought between 2013 and 2018 and they too have benefitted from prices rising and have an average of more than $87,000 in equity – again after accounting for missed payments.

And even the newest owners – those who purchased their home in 2019 or later – and they represent 15% of all homes in forbearance – well they still have an average of over $65,000 in equity.

The bottom line is that, in broad terms, a typical homeowner in forbearance could – with relative ease – cover the costs of selling a home and still have some equity left over.

Will foreclosures rise this year – yes, they will – but given all the facts I have just shared with you, I see it as being more of a trickle than a flood.

Well, there you have it.


In Conclusion

As far as I can see, all the data shows that we are in a very different place today than we were in the 2000’s and I find it highly unlikely that we will see a repeat of the events we saw back then.

Down payments are higher; credit quality is higher; and demographic demand for ownership housing remains robust and – quite likely will only grow as the nation’s Millennials continue to reach prime home buying. Remember that 9.6 million of them will be turning 30 over the next 2 years alone.

But, as I said in my opening comments, the pace of price growth that we’ve seen over the last year or so is clearly unsustainable and must, at some point start to slow, if only to allow incomes to catch up.

In fact, I am already seeing some tentative signs of this with the percentage growth in list prices starting to soften in several markets across the country which should start to ease the pace of sale price appreciation.

But I am afraid that I just don’t see a national downturn in home values occurring – unless banks decide to significantly loosen their underwriting criteria, but I find that very hard to believe.

Thank you for sticking with me during this rather long video. I do hope that you found it of some interest.

As always, if you have any questions or comments about today’s topic, please feel free to reach out. I would love to hear from you.

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

Bye now.


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Matthew Gardner Op-Ed: Why fears of a housing bubble are wildly overblown

This op-ed by Matthew Gardner was a part of a series on Inman News featuring views from housing experts about the potential for a 2021 housing bubble.


On face value, I can certainly see why some are worried about how much home prices have been escalating — not just during the pandemic period, but since housing prices started recovering back in 2012.


Home price growth has been outpacing wage growth for a long time, with median prices up more than 113 percent since January 2012, while wages have only risen by a far more modest 30 percent.

Moreover, in 2020, prices increased by more than 9 percent and were up by a record-breaking 17.2 percent between March of 2020 and March 2021. As a result, mumblings of the imminent bursting of a new housing “bubble” are now being heard far and wide across the US.


I’d like to start off by addressing those who believe impending doom is on the horizon. I am afraid I have some bad news; it’s not going to happen.

While it’s easy to argue that such a rapid increase in home prices is sure to end badly — as it did in 2008 and 2009 — you would be wrong to conflate these two time periods. Today’s housing market is markedly different from the one we saw back in the 2000s.


Allow me to explain why.

For more than six years, we have suffered from a woeful lack of homes to buy in the U.S., while simultaneously adding almost 10 million new households. Obviously, not every new household translated into a new homeowner, but given demographic growth and the ongoing shortage of inventory, it was enough to tip the scale between supply and demand, resulting in rapidly rising home values.

So, why are there so few homes for sale?

This is probably one of the questions I get asked most. The first reason is that Americans aren’t moving as often as they used to, which limits supply. In the early 2000s, we used to move an average of every four years, but the number today is over eight years. If there is less turnover of homes, supply remains scarce, and prices rise.

The next thing we need to consider is the new construction market, which has the ability to equalize supply with demand when enough homes are being built. But in recent years, the number of newly built homes has tracked well below the levels needed to help create a balanced market.

Furthermore, the ongoing escalating cost of building materials has led to higher priced homes being built, which doesn’t fulfill the lower end of the market where there is the greatest demand.


So far, the scenarios described above are entirely opposite to those of the late 2000s, but there are several other reasons why we are in a very different place today compared to the pre-bubble days.

Much like the current market, demand for housing in the 2000s was very strong, but a major difference between the two markets is that much of the demand back then wasn’t actually real — and certainly not sustainable.

Renters were becoming homeowners in record numbers, and people were snapping up investment properties who, quite frankly, should never have been allowed to. Lending policies were so lax that qualifying for a home was far too easy, which ended up being the principal reason why we saw a housing bubble form and subsequently burst.

Without a doubt, the lack of credit quality is the most significant difference between today’s market and that of the 2000s but gone are the days of “low-doc” or “no-doc” loans that allowed buyers to essentially make up their income to qualify for a mortgage.


Instead, according to Ellie Mae, what we saw in 2020 was 70 percent of mortgage originations going to borrowers with proven FICO scores above 760, and the average credit score over the past five years was a very high 754.

Although sub-prime borrowing still exists — and there is a rational place for it — the share of borrowers with a credit score below 620 was just 2 percent last year. For comparison purposes, it was 13 percent in 2007.

It’s also worth pointing out that back in 2004, a full 35 percent of mortgages were ARMs, or so-called “teaser loans.” When the rate reverted on these loans, it forced many homeowners into foreclosure because they could no longer afford the monthly payment. Fast forward to today, the share of ARMs in March of 2021 was just 2.4 percent.


Finally, I like to look at mortgage credit availability, and the Mortgage Bankers Association has some very rich data on this. The MBA’s index, which is calculated using several factors related to borrower eligibility (credit score, loan type, loan-to-value ratio, etc.), acts as a very useful bellwether when it comes to the health of the housing market.

Although the index has been rising since last fall (suggesting more freely available credit), it is still 85 percent below where it was in 2006, suggesting that lenders remain cautious.

The bottom line is that credit quality and down payments are far higher today than they were in the pre-bubble days, and mortgage credit supply remains very tight relative to where it was before the collapse of the housing market.


So far, I am not seeing a correlation with the “bad old days” — are you?

It’s irrefutable that home prices have been increasing at well above average rates for several years now, and that is cause for concern, but not because of any impending bubble. Rather, what concerns me is the impact rising prices is having on housing affordability.

Current homeowners are in good shape and, according to the most recent Federal Reserve Financial Accounts of the U.S. report, are currently sitting on over $21 trillion in equity.


Furthermore, the latest data from Attom Data Solutions indicates that over 30 percent of homeowners had at least 50 percent equity in their homes at the end of last year. But this doesn’t help first-time buyers who are so critical to the long-term health of the housing market.

Keep in mind, there is a wave of first-time buyers coming; over the next two years, 9.6 million millennials will turn 30, and Gen Z is close on their heels. Given where prices are today, the question should be: Where will they be able to afford to buy?

This, in my opinion, is a far bigger issue than any mythical bubble bursting.


To find this and the other pieces in the series, click here.

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4/29/2021 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 and welcome to the April edition of Mondays with Matthew. I’m Windermere Real Estate’s Chief Economist, Matthew Gardner

There were a lot of rich, housing-related datasets released this month so let’s get going.

And first up, I want to look at mortgage applications.

Source: MBA

You may remember last month we discussed what was going on with mortgage rates as they had started to trend higher beginning in the New Year. Well, as rates rose, you can see here that mortgage applications slowed before picking back up in at the end of February, which was interesting as rates were still rising at that time.

And for those who find it curious that applications picked up even as rates were rising, well it was partly because buyers started to believe that rates would not be headed back down, and they wanted to get locked in for fear that they would continue trending higher.

Now, this pattern did reverse at the end of March as rising rates started to take a toll on would be buyers and affordability issues started to come more into play, but as mortgage rates pulled back in April, applications picked up again – albeit modestly.

Next to the Mortgage purchase graph, on the right we see the weekly mortgage purchase index which looks at the year over year data. Here we see that since this time last year, there are 58.2 percent more mortgage applications.

Source: MBA

But when we take a look at the data on a year-over-year basis.  Well, WOW!

Applications were up by over 58%! But remember what happened in March of last year? Who can forget….?

And its therefore really not surprising to see this kind of spike, but, I would caution you all that almost any dataset that compares current numbers to those seen a year ago – well, they are likely to paint far too rosy a picture, and one that is removed from reality.

Something to be aware of.


Next up, we got several datasets regarding the new home market March and we will start off with permits and starts.

Two line graphs next to each other. The one on the left shows the single family building permits from January 2019 to March 2021. Overall the trend is upward, with a large dip from March to May 2021, but they soon recover as if that dip never happened. From January to March 2021 there was another small dip, but there’s already proof of improvement back from that. On the right, the graph shows the single family home starts, again overall starts have increased since January 2019 to March 2021, with a few peaks and valleys in between, included a recent dip from November 2020 to February 2021, but they’re back on the rise since then.

Source: Census Bureau

Following the pullback in permit applications that was seen in February, builders were more optimistic in March with single family permits up by 4.6% on the month and 35.6% higher than a year ago – but don’t forget what we just said about year over year data!

Looking at housing starts – well they pulled back in January and February, but also saw a solid 15% monthly increase in March.

Interestingly, there was a massive spike in starts in the mid-west where they were up by 109% month-over-month, but they were actually down by over 12% out here in the west.

I would also let you know that the number of homes under construction rose by 1.6% versus February and this was particularly pleasing given that construction costs remain very elevated.

And it hasn’t just been material costs that have been hitting home builders, they have also seen significant pressures with labor costs and here’s why…

One line graph to the left, with space to the right for another. Data shows total employment in construction from January 2010 to February 2021. Overall trend shows constant growth since 2012, with a sharp dip in 2020 from the pandemic.

Source: BLS

This chart shows how many people are employed in the construction of single-family homes and, at face value, it looks pretty good with constant growth seen since 2012 – of course, ignoring the impact of the pandemic but….

On the same slide as the total employment in construction, to the right of that graph there’s total employment in Construction from January 2000 to January 2021, which shows an overall trend of decrease in jobs. A peak in 2006 soon falls to a very low valley in 2012.

Source: BLS

Looking at a longer timeline, it doesn’t paint as good a picture. At its peak in 2006, there were almost 650,000 people employed building homes, but the number today is just 60% of that.

Of course, there are fewer homes being started today than there were back in those halcyon days but starts today aren’t 40% lower, so the job market remains tight. In fact, there are over 260,000 job openings in the construction sector. Of course, not all of them are for the single-family construction market, but we do know that builder’s cost of labor is rising and that, in concert with higher land and material costs continue to impact builder’s ability to bring homes to market that are relatively affordable as the increase in costs is transferred directly into the price that a home must sell for and that brings me to data on new home listings, sales and prices in March.

Two graphs side by side, on the left is a line graph showing the Single Family New Homes for Sale in the US. This graph shows an overall trend of decrease in new homes for sale from 2019, but increased since the lowest point in the fall of 2020. On the right is a bar graph showing the houses for sale by stage of construction. The grey line represents “not started,” light blue represents “Under construction,” and navy represents “completed.” The light blue lines showing under construction are constantly the highest bars hovering between 150,000 and 200,000.

Source: Census Bureau

Even with new housing permits and starts rising significantly the seasonally adjusted estimate of new houses for sale at the end of March was 307,000. This represents a supply of 3.6 months at the current sales rate.

The number of new homes for sale was down by 7% from a year ago, but I do expect that the increase in permits and starts bodes well for this arena, and I do expect to see more listings come online over time.

If you look at the chart to the right, you will notice that the number of homes for sale that have yet to be started continues to rise. This is because builders want some certainty that the home will be sold, and it’s, therefore, easier to sell before you build it.

Source: Census Bureau

And when we look at sales, well they rise by 20.7% in March to an annual rate of over 1 million units and clearly rebounded from the previous month when we saw a massive drop as severe winter storms wreaked havoc across much of the country.

Interestingly, you will see that as many homes sold that hadn’t yet started as were under construction. Clearly, demand is robust to the degree that buyers willing to commit to buying a home that hasn’t yet been built.

The median new home sale price came in at $330,800 – that’s down by 4.4% on the month but 0.8% higher than a year ago.

Source: NAR

OK – now we have covered the new home market, let’s take a look at how the resale market fared in March.

The number of homes for sale remains at almost historically low levels with marginally more than 1 million units on the market. Now there maybe some of you out there who say that is inaccurate as NAR is reporting 1.07 million homes for sale, and you’d be absolutely correct.  But I have adjusted the data to account for seasonality, so it is slightly different.

Anyway, with such limited choice across the country, it wasn’t a surprise to see sales pulling back, with the total number of closings running at an annual rate of 6 million units – that’s down by 3.7% month over month, and down by 12.3% when compared to March of 2020.

Am I worried about this? No, I am not. Why? Well, as I just mentioned, just look at the inventory numbers.  With little choice, it’s not at all surprising to see sales pull back but I would add that the market still hit 6 million transactions and that was in the face of the increase in mortgage rates that we saw last month so, to tell you the truth, I was actually a little surprised to see that the number held above that 6 million level.

Source: NAR

But even as sales pulled back a little, prices didn’t, and more records were broken with the median sale price hitting an all-time high, and year-over-year price growth above 17% was another record shattered.

Source: NAR

And if you need further proof that there is little to be concerned about when it comes to sales pulling back, you only need to look at these charts.  Low supply, but still very robust demand has months of supply at levels that indicate a highly unbalanced market. Nationally, I like to see somewhere between 4 and 6 months of supply, not 2.1…

But look at the right. For every offer accepted in March, there were 3.8 additional offers, and I would also tell you that the average length of time it took to sell a home in March was just 18 days and that’s down by one day from February but down by eleven days when compared to a year ago.

Surely if demand was waning, wouldn’t the number of offers be going down, and days on market going up?

Source: NAR with Windermere Economics seasonal adjustments

And when we separate out the single-family market, you can see that listings notched very slightly higher – up by 1.2%, but the level is still close to an all-time low with listings down by over 31% year over year.

As far as sales are concerned, well they also pulled back a little and were down by 1.3% versus February but were 14% higher year over year.

Source: NAR

And as we discussed earlier, even with lower sales activity, sale prices are still rising at a very rapid pace and are now over 18% higher than seen a year ago and a remarkable 6.2% higher than seen in February.

The median price also broke above $330,000 for the first time.

Source: NAR with Windermere Economics Seasonal Adjustments

Moving on to the condominium market, we saw listings rise as the pandemic took hold, and there were concerns back then that we were at the start of a systemic increase in listings with people fleeing cities over fears of COVID-19, as well as the ability to work remotely, but the increase soon wore off, even if it rise by 9% in March when compared to February, but there were 5.1% fewer listings than seen a year ago.

But on the sales front – and with listings rising – we saw demand for those homes with sales up by 5% versus February and 36.4% higher than seen in March of 2020.

Source: NAR

In a similar fashion to single-family prices, sale prices for condominium units saw a spike in price in March and were up by 4.9% versus February and almost 10% higher than seen a year ago.

Although you will see that annual sale price growth did turn negative last May – due to COVID – it is actually rare to see this. We did see a tiny drop back in 2018 but you will likely remember that mortgage rates were rising then and knocking on the door of 5%.

Anyway, since last May, sale prices have picked back up very nicely and worries of any significant drop in condo prices appears to be overblown.

As far as the ownership market is concerned, I am far less worried that mortgage rates have been ticking higher than I am that there are just not enough homes for sale to meet demand.

We had seen some growth in the new construction arena – and that took just a tiny bit of heat off the resale arena – but demand continues to exceed supply, and that is pushing prices higher and affordability issues have already started to appear in several markets across the country.

At some point, we will see price growth slow, but I think that it will be far more to do with affordability limitations than it will rising mortgage rates.

So, there you have it. My thoughts on the housing market in March.

As always, if you have any questions or comments about the numbers, we have looked at today, feel free to reach out. I would love to hear from you.

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 4/29/2021 Housing and Economic Update from Matthew Gardner appeared first on Windermere Real Estate.

3/29/2021 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 am Windermere Real Estates Chief Economist, Matthew Gardner, and welcome to the March episode of Mondays with Matthew.

Well, we have lots to talk about this month so let’s get straight to it and, first off, let’s take a look at the February existing home sales numbers.

Listings and Sales. Source: NAR with Windermere Economics Seasonal Adjustments

As you can see in the top chart, the number of homes for sale was measured at just over 1 million units.  This is a woefully low number and one that we haven’t seen since NAR started to gather data on listing inventory.

And the bottom chart shows home sales and they fell by 6.6% month-over-month in February to a seasonally adjusted annual rate of 6.22 million units but they were still 9.1% higher than a year ago.

Why the drop? Well, I am putting the blame squarely on the shoulders of home sellers who – quite frankly – simply aren’t selling!

Line chart showing the Media Sale Price of U.S. Existing Homes showing January 2021 at a peak of $313,000, the same as the last peak in October 2021 which was record breaking at the time.

Home Prices are at an All-Time High

And looking at sale prices, they ticked higher in February to a median of $313,000, and that matches the all-time high seen last October and is 15.8% higher than we saw a year ago. This is the fastest annual pace of price growth seen since August of 2005, but I have to add that the number is a little deceiving as it was skewed higher by significant growth at the upper end of the market with sales above $750,000 accounting for close to 10% of all sales in February and sales above $1M up by a whopping 81% when compared to a year ago.


The numbers also showed that homes took an average of just 20 days to turn pending, another record, and 74% of homes sold in less than one month.

Individual investors or second-home buyers purchased 17% of all homes sold in February, and that’s up from 15% in January and matches the share seen a year ago

Now, as we move through the year, there are a couple of things worth noting.

We all know that the market is tight, but I still expect total sales this year to come in at around 6.3 million units – this is lower than my forecast from the start of the year but would still represent an 11.6% increase over 2020.

Heat map of the United States of America showing the Equity Rich Homeowner rates in the 4th quarter 2020. The colors represent households with more than 50% equity in the state, with red showing 17.1%, salmon shows 32.5% and green represents 47.8% of the population.

Owner Equity.

Although these are not numbers from NAR, I did want to share with you some different data that does relate directly to the increase in sale prices that we have just discussed.

With the significant upswing in sale prices that we have seen over the past 8 or so years, over 30% of all homeowners in America currently have more than 50% equity in their homes and this is a massive figure.

But across the country, there are significant variances as you can see here.

The largest share of homeowners who are equity rich live in Vermont and California but many west coast markets are not far behind with significant owner equity seen in WA, OR, ID, UT, & CO.

These really are very impressive numbers.

Two lines on the same graph show the weekly rate for Mortgage Rates of Variation Durations. The top line, a navy blue, shows the 30 year fixed, and light blue line below is the 15 year fixed mortgage. Each line follows a similar pattern peaking in March 2020, with a slow dip until January 2021, which the most recent date hitting 3.17% for 30-year fixed rated, and 15 year fixed rates hitting 2.45%.

A Jump In Bond Yields Has Led to Rates to Spike

It’s time to take a look at mortgage rates as a lot has been going on in that space too since we last talked.

This chart shows the average weekly rate for 15 and 30-year conforming mortgages and, as you can see, rates started to jump in early February and I find it very unlikely that they will drop back down at any time soon.

I am sorry, folks, but the days of 30-year rates starting with a 2 handle well they are now firmly in the rearview mirror.


So what has caused this spike?

Well, it’s very simple. COVID-19 case counts are dropping; the distribution of a vaccine is going remarkably well. As I speak, over 130 million doses have been given and over 46.4 million people are now fully vaccinated against COVID-19.

But there is a fear that that – with the country starting to reopen – we will see a significant boost in economic activity which, in concert with the latest round of stimulus payments, has generated rumblings from some economists who are now looking to see inflation to take off.

And as much as its great news that we are seeing a better than expected rollout of the vaccine, which will lead to faster economic growth in the second half of the year, the potential for inflation to rise is now elevated and this has caused a move out of bonds – specifically 10-year treasuries,  which means that the interest rate for these bonds has to rise and the interest rate on 10-year paper directly impacts mortgage rates – specifically the rate on the ever-popular 30-year mortgage.

But before everyone starts getting panicked about this, look at it this way.

Shadow line graph showing the weekly average 30-year fixed mortgage rate trends. The graph shows a peak in January 2019, a fall off until the summer 2019, then another increase in the winter 2020, and a steady decrease since then until January 2021 where there's a sharp increase again.

But Let’s Keep Some Perspective!

Even at 3.17%, rates remain remarkably low. Yes, the current rate was last seen in June of 2020, but it is still well below the long-term average.

But, that said, and given the upward move in Treasury yields, I have had to rerun my forecast models for mortgage rates, and here is where I see rates trending this year.

Bar graph of the average 30-year fixed rate mortgage rate history and Matthew Gardner's forecast. The Navy blue bars from Quarter 1 2018 to quarter 4 2020 show an increase, peaking in q4 2018, and decreasing until the low in q4 2020 at 2.7%. Matthew's forecast for the next 4 quarters in light blue predicts 2.99% in q1 2021, 3.2% in q2 2021, 3.48% in q3 2021, and 3.63% in q4 2021.

Although rising, rates will remain very reasonable

I expect that we will see rates rise to an average of 3.6% by the 4th quarter of 2021 and, looking farther out, we will likely break back above 4% in early to mid-2022.

Now, I could actually be a little optimistic if – and it’s a big if – 10-year bond yields rise faster than I am forecasting but, for now, I don’t see that happening unless, of course, inflation really does take off but, again, I don’t see that.

That said, I am looking for a spike in inflation in the next few months as we feel more comfortable going out again and we start to spend our money in a more normal manner, but I believe that inflation will level off and not get out of control. However, if it does, then more bond buyers will head further out along the yield curve and buy longer duration treasuries to counter inflation, which will mean that the interest rates on 10-year treasuries will have to rise to attract buyers and this, of course, will lead mortgage rates higher.

Bar graph showing the forecasts for conventional 30-year fixed mortgage rates in 2021 from other sources with Windermere Economic's forecast in the upper end at 3.53%. Mortgage Banker's Association forecasts 3.6%, Wells Fargo predict 3.46% and Freddie Mac is the lowest with 2.8%.

And my colleagues agree!

And just in case you don’t believe me, here is my forecast for the average rate in 2021 rates alongside some of my fellow economists, and, as you can see, other than Freddie Mac, we are in a fairly tight range.

I would add that the NAR and Freddie forecasts are a month or so old, so I would not be surprised to see them revise their forecast upward at some point.

Two line graphs side by side showing Housing Permits and Starts. On the left, the line graph show the single-family building permits in the thousands, with a v-shaped recovery with a low below 700 in April 2020 and a peak in February 2021, with a small dip for the current number at 1,143. On the right, the single-family home starts char shows a similar pattern, with the current number at 1,040 after a spike in the fall 2020 above 1,300.

Housing Permits & Starts

Moving on to the new home market – both permits and starts pulled back in February with starts down by 8.5% on the month and single-family permits down by 10%.

So, what was going on? Well, despite strength in buyer traffic and lack of existing inventory, builders are slowing some production of single-family homes as lumber and other material costs continue to rise.

And shortages of lumber and other building materials, including appliances, are also putting future construction at risk.

While single-family starts for the first two months of the year are 6.4% higher than the first two months of 2020, there has been a 36% year-over-year increase in single-family homes permitted but not yet started as some projects have been put on pause because of the cost and availability of materials to build homes.

Double line graph showing data about the current prices and costs of building a houe. The blue line represents the random lengths framing lumber composite price and the red line show the CME futures price. These two lines follow a similar pattern with a peak in September 2020 to a dip in November 2020, and back on the rise again, reaching a peak in March 2021.

Current prices have added $24,000 to the cost of building a home in the U.S.

And to give you some perspective about the direction of lumber prices, they have skyrocketed more than 180% since last spring and this price spike has caused the price of an average new single-family home to increase by more than $24,000 since April of last year.

This chart provides an overview of the U.S. framing lumber pricing market and it’s not pretty.

But you can also see that the futures price has been dropping which may mean that we are getting closer to the end of the massive increases in lumber prices that builders have been facing.  Time will tell.

Line chart showing the single-family ne home sales from December 2018 to February 2021. There is a low point in April 2020 which steadily increased quickly plateauing just under 1,000 in July 2020 until it varies in December ad through the winter.

U.S. Single-Family New Home Sales in thousands, seasonally adjusted annual rate.

And on the sales side of the equation, after a slight rebound in December and January, the slowing of the pace of new home sales continued in February as a combination of affordability challenges, more costly materials, and storm effects which, in concert with each other led purchases of new homes to drop by 18% to a seasonally adjusted annual rate of 775,000 units.

But I would add that the February sales rate was 8% higher than we saw a year ago, and there is still demand which is being supported by still relatively low-interest rates, but more from solid demand in lower-density markets like the suburbs and exurbs.

Inventory levels did rise slightly with 312,000 new homes for sale, but that was 4.6% lower than a year ago.

The median sales price came in at $349,400, up 5.3% from a year ago.


And finally, I recently read a fascinating analysis that the NAHB put out which in essence, suggested that the recent rise in mortgage interest rates over the past two months has priced more than 1.3 million households out of the market for a median-priced new home.

In fact, the study found that just a $1,000 increase in the U.S. median new home price would push 153,967 households out of the market.

Pyramid bar char shows the U.S. households in millions by the highest price home they can afford based on income in 2021. The lowest house price, between 0 and 100k has 21.1 million households who can afford that, while only 3 million households can afford a home that's more than $1.55 million. The largest dips between groups are between 500-600k and 600-700k going from 8.1 million to 5.5 million households. Another big jump comes from 700-850k homes at 5.3 million households being able to afford that to 850k-1.05 million at 3.7 million households being able to afford that.

If the Pace of Home Price Growth Continues, Many Households Will Start to Be Priced Out

So, looking at it this way, the NAHB created the affordability pyramid you see here which shows that as the price of a new home increases, the number of households in each tier that are able to afford it decreases. All very logical.

About 21.1 million households are estimated to have the income needed to buy homes priced below $100,000 and they are shown on the bottom step of the pyramid.

And of the remaining 101.8 million households who can afford a home priced at $100,000, 19 million can only afford to pay a top price of somewhere between $100,000 and $175,000 and they are shown on the next step and, naturally, this trend continues up the pyramid of house prices with each step representing a maximum affordable price range and the number of households who qualify.

Although it’s certainly possible to find households at the high end of the market, there are a lot more households at the low end where affordability is a very major concern – 71.1 million households in America could not afford to buy a median-priced new home. That’s almost 58% of all households in the country.


The bottom line is that increased development costs can, and likely will, price these households out of the market for a new home, and with the cost of existing homes also rising rapidly, for more and more households, reaching the American dream of homeownership is getting harder and harder.

I am sorry – I really didn’t mean to end on a low note – but the facts are the facts. We need more housing supply and we need home price growth to slow. Of course, price growth will slow if my mortgage rate forecasts are accurate but it might already be too late of many who would like to buy a home.

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 numbers we have looked at today, feel free to reach out. I would love to hear from you.

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 3/29/2021 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.

10 Predictions for the 2021 Housing Market by Windermere’s Chief Economist


1. Economic Growth Will Pick up – But Not Until the Summer

As you are all aware, the job recovery has slowed significantly over the past few months and the December number – which saw employment levels actually drop by 140,000 jobs – was really quite appalling.

But… as bad as the numbers were last month, I am still expecting to see solid employment gains this year.

That said, I don’t see significant improvement until the vaccine starts to be distributed widely AND a majority of us choose to take it.

And when we get to that point – likely in the second half of this year – look for a lot more jobs to be added across the country, but employment levels will rise for a reason that most people aren’t thinking about, and it’s because I believe that the public – as they feel more comfortable going out – will start
to spend again.

In fact, it’s my forecast that spending will rise very significantly later this year and that will give a much-needed boost to the economy and the job market.

You see, we haven’t been spending our hard-earned dollars at normal levels for almost a year now and, quite frankly, the cash that we have been hoarding since the pandemic started is starting to burn a hole in our pockets.

So, my number 1 prediction is that we will see significant economic growth– and job gains – this year, but that most of the growth will come in the second half of 2021


2. The Move to the Suburbs is Real – But Don’t Get Carried Away! Looking now at the housing market, there’s been a lot of talk about a COVID-19 induced flight away from cities and into the countryside.

Well, the numbers don’t lie – there have certainly been more interest from buyers looking at markets outside of our core metros and this – obviously – is a function of the work-from-home phenomenon that I believe is not a flash in the pan, rather it is real and will be in place for a long time, if not forever.

But there is a bit of a wrinkle in this theory. In as much as we are certainly seeing suburban flight from markets like New York and San Francisco, the same can’t be said for much of the rest of the country.

In fact, according to a study recently published by Lending Tree, the percentage of owners who moved out of the top 50 largest metro areas in the country in 2020 was just 2.2% – now this is up from 1.9% in 2019 – but it’s hardly the tsunami that many had anticipated. And it’s also worth mentioning that some of the markets within Windermere’s footprint actually saw a net increase of migrating homeowners and not a drop. Examples of this include Denver which saw the number of households moving in up by 3.6% in 2020; Portland was up by 3.4%; Seattle by 3.3%; and Sacramento saw an in-migration rise by 2.9%. Although some households will move because work from home allows them to relocate to cheaper markets, it doesn’t mean that we are all headed out to the wild blue yonder.

In fact, I believe that – even though a good number of households will move – many will stay within striking distance of their workplaces, and I say this because I expect the work from home concept to be one where we work part-time from our homes, and part-time at our offices.

My number 2 forecast is that although people will move away from some of our core cities this year, many will still stay in the same region as work from home will not be a full-time situation for a majority of workers.

3. Not all Apartment Markets are Created Equal

The apartment market has been hit very hard by COVID-19 with rising vacancy rates putting significant downward pressure on rents in many large markets such as Seattle, San Francisco, Boston, and New York but guess what? We are actually seeing rents still rising in many smaller cities and these include Boise, Fresno, and Tucson, Arizona.

And this move away from expensive apartment markets is occurring for several reasons not least of which is – again – work from home, but it’s also due to an increasing number of renters turning into home buyers, and it’s also because the rent premium for being “close to the action” in major cities has faded and, because of this, I see previously overlooked suburbs and
small metros benefitting from growing demand.

2021 will be a tough year for many landlords in larger cities not just for the reasons I have already mentioned, but also because we are bringing on over 400,000 new apartment units across the country this year and many new developments are in these larger cities.

Number three forecast – Apartment owners in pricy markets will continue to suffer in 2021, but smaller markets will perform rather well and – after many years of being overlooked – I am also forecasting those apartment developers will start to turn their attention toward suburban markets and away from many of these larger cities. We haven’t seen that in over a decade.

4. The Luxury Housing Market Will Continue to Perform Very Well

One of the sectors that really performed far better than anyone – including me – had anticipated in 2020 was the luxury housing market, and I expect this sector to be very robust again this year and the reason for this, primarily, will be interest rates. Jumbo mortgage rates, which saw a spike at the start of the pandemic, have since dropped significantly and this is benefitting buyers of luxury housing.

Buyers of luxury housing will be very active this year and I see many focusing on some secondary markets – for value reasons – but I still expect that the classic luxury markets, like the Hamptons for example, will also do very well.

Other markets where the luxury sector will outperform are Miami – but this will be mainly due to tax changes in New York City driving owners to relocate – and I’m also watching Southern California and predict that luxury homes down there will also outperform this year.

One more thing I would mention is that I also expect that, as the country starts to reopen post-COVID, we will see a rebound in foreign buyers as well so keep an eye on that too.

Forecast number 4 – the luxury market will be more robust in 2021 than many had anticipated.

5. Cities will Start to Pay More Attention to Zoning (at Long Last!)

Many of you will be more than aware of my ongoing concerns regarding housing affordability. Now, we have seen some cities like Minneapolis, and even some States – and here I’m talking about Oregon – start implementing significant zoning changes to allow for more new home development in their markets which is impressive, but it certainly isn’t happening everywhere.

However, I believe that this year we will – at long last – start to see more attention from legislators when it comes to increasing the supply of land for residential construction and many will do this by adjusting current zoning policies to allow more land on which to build.

So why this new focus? Well, their attention will be driven by worries that high housing costs in their own markets may lead businesses to start to look at cheaper areas and – possibly – move away from their current locations, and other businesses that are thinking about expanding into new markets – well, they will be increasingly thoughtful about how housing costs in expansion markets will impact how much they have to pay their new employees.

You see, we know that almost every jurisdiction across the country is suffering from significant shortfalls in revenue and, because of this, legislators will have to start focusing on attracting new businesses – and retaining as many businesses as possible – in order to help replenish their coffers.

Forecast Number 5 – Although it won’t happen overnight, I am hopeful that discussions around zoning changes will start to pick up some steam this year.

6. Adaptive Reuse Will Gain More Traction

Over the past several months, many of you have asked me whether we will see office buildings converted to residential uses as there will be fewer workers occupying offices. Well, I am sticking to my belief that the cost of conversion and the layout of office buildings (primarily due to core depths, lack of plumbing penetration, and the like) just don’t lend themselves to conversion to residential uses – well, that is unless you buy them at bankruptcy prices!

That said, I am expecting to see other building types that may be better suited for conversion into either single residential use or a mix of uses, start to become attractive to developers.

And what are these other product types, you ask? Well, likely unsurprising to you is that I am looking at hotels – which are going to continue to be hard hit for, in my opinion, years… and retail malls – both strip as well as regional.

You see, we are already seeing more hotels – mainly inns and motels – be listed for sale as they are just not providing adequate cash flow and I expect
that some, but not all, may become ripe for conversion into residential uses.

As far as malls are concerned, look for more interest in the conversion of regional malls into mixed-use projects, but strip malls may get rezoned into single residential uses.

Number 6 – developers will start to pay more attention to the reuse of existing buildings in addition to ground-up construction.


7. What’s important in a post-COVID-19 home?

The pandemic has started to change what we are looking for in a home and it’s actually very interesting to see what is now becoming important to buyers. We know that work from home is real, but I see households moving not just because housing is relatively cheap further out, but many will look at their own homes – even if they are on the fence about moving – and realize that it’s just not set up for working remotely on a semi-permanent, or permanent, basis.

How many people do you know who have spent the past several months working from their dining room tables? I’m one!

But I also expect to see sellers who may not have an office in their homes, create dedicated spaces for an office set up to attract buyers or, where they just can’t do that, they will, at a minimum, create a dedicated Zoom space before listing their homes for sale!

I am also forecasting that you will also see new construction housing reflect these changes with builders better aligning their product with new consumer preferences and that demand for new homes will rise in 2021 as builders address these new requirements from buyers.

People want more space today because they are using their homes more and I already see builders addressing this with the average new home size rising last year following several years where new homes were actually getting smaller.

Also, when it comes to new construction, open floor plans — once a must — well they will be replaced too thanks to COVID-19 and buyers wanting more room separation.

And finally, I expect buyers who are looking to move a lot further out to become far more interested in markets that have high-speed internet access. Many of us take it for granted, but buyers will start to list this as a requirement, rather than an option – again possibly limiting moves too far out into the country.

Forecast Number 7 – Home preferences are changing – builders are already adapting, and owners of existing homes will have to do what they can to meet these new requirements.


8. Worries About Forbearance are Overblown.

Since last spring, a question that I have fielded probably more than any other, has revolved around the topic of forbearance.

The GSE’s have extended the forbearance program to the end of March so some of the pressure has been removed, but there are a lot of people who fear that – when forbearance expires – we will see a veritable tsunami of foreclosed homes come online and this massive increase in supply will lead to all homes seeing values drop.

Well, it won’t happen, and here’s why.

First off, the number of homes in forbearance is already down by 43% from its May peak. Even though it is true that the pace of the drop in the number of homes in the program has slowed, the trend is still headed in the right direction.

Yes, there are still 2.7 million homes in the program, but I believe that, as owners start to get back to work again, many will be able to either refinance their loans or work with their lenders to extend the term of their mortgages in order to make up missed payments and most will not end up in foreclosure.

I would also add many owners in the program – if they just can’t get back on track – will sell in order to keep the equity that they have built over the last few years and, in most areas, there will be enough buyer demand and they will be able to get out from under forbearance by selling and paying off the mortgage and missed payments that way.

Of course, we will see foreclosures rise this year, but I just don’t see the majority of owners in forbearance be forced into foreclosure and that will limit the downside risk to the housing market.

That said, I am a little more worried by condominium owners who are in forbearance as the supply of these homes is already on the rise and this is causing prices to soften relative to single-family homes.

This is not a phenomenon spread broadly across the country, but many markets are seeing condo price growth slow and some – here I am looking specifically at Queens in New York, Suffolk County in Boston, and in San Francisco County – are seeing real price declines and I do expect to see a greater share of condos end up in foreclosure, but a far smaller share of single-family housing will suffer the same fate.

And I must add that not all market areas are created equal. Today, total delinquency rates are very high in states like Mississippi, Louisiana, New York & Oklahoma, but here in the western US they are significantly lower.

Interestingly, when I looked at Windermere’s footprint, I am delighted to report that the States with the lowest rate of non-performing mortgage include Idaho, here in Washington State, Colorado, Oregon, and Montana.

So forecast number 8 – I do not anticipate a wave of foreclosures following the end of forbearance, and that the foreclosures that do occur will have a limited impact on the broader ownership housing market.


9. Mortgage Rates Will Rise – But Don’t Worry

Rates for 30-year conforming mortgages have broken below all-time lows 16 times since the pandemic started. Really remarkable with the average 30-year rate at the time of recording this video standing at 2.65% and rates down by over a full percentage point over the past year and that, naturally, has allowed prices to continue rising at above-average rates, but going forward I just don’t see them dropping much more, and I believe that we have, at least for now, reached a floor when it comes to rates.

Without getting too academic, the reason I say this is that mortgage rates track the interest rate on 10-year treasuries – or at least they should – but that relationship broke back in February – because of the pandemic. However, treasury yields have started to rise again, and that relationship is now back in line which tells me that rates are unlikely to drop much further – all things being equal.

Prediction number 9 – mortgage rates are unlikely to drop much more, but don’t anticipate them rising too much with this year averaging around 3.1%. Still very competitive.


10. US Home Sales Will Rise Significantly, but Price Growth Will Moderate

Finally, I just have to talk about home sales and prices even if I did cover this in my last forecast. Given all the factors I have already talked already, we will see more demand from buyers this year, and I also expect to see listings actually increase as people look to relocate, and this will lead sales in 2021 to rise to a level we haven’t seen since 2006!

And big players in the housing market as far as buyers are concerned will be renters turning into home buyers and I would add that we could see first-time buyers make up an even bigger share of the market if the Biden Administrations goal to introduce a new first-time buyer tax credit gets enacted – but that is certainly not a given.

Overall, existing home sales will rise by 7.7% in 2021 to around 6.2 million units.

As for prices, well I see them increasing again this year but, as I just mentioned, mortgage rates will start to move modestly higher and this will be a bit of a headwind to price growth, and affordability constraints will also start to slow appreciation in expensive housing markets. This year I am looking for average prices to rise by a relatively modest 4.1%.

My final forecast – home sales will rise significantly this year, but price growth will moderate.

The post 10 Predictions for the 2021 Housing Market by Windermere’s Chief Economist 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.