Housing Market Crash or Rise in 2021?

The expectations of housing price growth have returned to the pre-COVID-19 levels and debt delinquency expectations remain low. However, expectations for the year-ahead or household income remain weak compared with the pre-COVID-19 period. The median expected short term inflation has remained unchanged at 3.0 percent. However, the expected for medium-term inflations has dropped to 2.7 percent.

• In September, median inflation expectations remained unchanged at 3.0% at the one-year horizon and at the three-year horizon, had decreased .3% percentage points returning to what it was in July at 2.7%.
• From August to September, median household spending growth expectation experienced the highest reading since May of 2019 with an increase from 3.0% in August to 3.4% in September.
• The mean probability that the U.S unemployment rate will increase by this time next year has decreased from 39.1% in August to 36.4% in September hitting below its 2019 average of 36.9%. This mean expectations was collected from respondents under the age of 60.
  The increase of home sales has rocketed to levels not seen since 2006. Equally telling were the strong pending sales that followed and the surge of mortgage application as well as robust construction data. Many households are seizing the opportunity to refinance their existing mortgages since the Federal Reserve has divulged that it has no intention of raising interest rates any time soon.

Historically low interest rates are an encouraging push to buy homes, yet the slow market supply keeps home prices up, which offsets the affordability benefits for lower rate markets says the Fannie Mae Economic and Strategic Research (ESR) Group.

In September, the Fannie Mae Home Purchase Sentiment Index (HPSI) increased 3.5 points to 81.0 points, rising for the second consecutive month since last year at this same time, continuing the post rebound from late spring. The HPSi is still down 10.5 points yet, has recovered over half of the early pandemic-period decline echoing the past few months of strong purchasing activity.

Six questions from the National Housing Survey (NHS) is the index measuring housing attitudes, intentions, and perceptions and indicates both the recovery and the buyer/seller behavior.

Three of six HPSI components increased from one month to the next, with consumers’ view of home-selling conditions, expected home price growth and labor market conditions much more optimistic. However, there remains a more pessimistic view of home buying conditions and mortgage rate expectations.

Recent surveys show that 56% think it’s a ‘good time to sell’ which outweighs the 54% who think it’s a ‘good time to buy’. Low mortgage rates and steady, although slow, improvements in the job force will likely instill more confidence for first-time homebuyers.

According to Zillow’s market pulse report of October 28, 2020, buyer’s confidence is regaining with a modest weekly growth of mortgage applications. Finally, applications for home purchase loans slightly rose ending the previous streak of four straight weekly declines.

Even with the four weekly declines however, application activity for home purchasing and mortgage loans remains in some of the highest levels from the last 12 years as well as 24% above last year’s levels. Take the recent week ending on October 17th for example, according the Zillow Economic Research, purchase applications averaged a new time high of $372,600.

While mortgage delinquencies have indeed declined, outstanding mortgages that were at least 30 days behind on payments in August has slowed improvements by 6.88%. This is only .03 percentages from July according to Black Knight. But if this current rate continues, over a milling loans will be behind on payments come March 2021 when forbearance programs begin to expire.

At least the rental payment rates seem to be staying above water in the U.S. In the survey of 11.4 million units of professional managed apartment units across the country that was conducted by The National Multifamily Housing Council, 94.6 percent of those households made partial rental payments or full rental payments by October 27th, 2020.

That is a 141,583 household decrease from the amount of renters who paid their rent through October 27th the previous year of 2019. This 1.2 percentage point difference compares heavily to the 92.2 percent of renters who paid rent by September 27th of 2020. Such data pulls from a large variety of market-rate rental properties across the country varying in size, type, and average rental price.

According to Realtor.com, in the week ending November 7th, the Housing Market Recovery Index declined to 108.0 nationwide, a whole 1.4 points down from the prior week. Using the data from the latest recovery report, this decline is mostly associated with the 2020 elections drawing away Americans from the housing market.

The housing index, which is pegged to a starting point of 100 at a particular year, is then just tracked for improvement or declination from that reference point. This is a similar index system to any other of which you peg a starting point or starting year and monitor movements going up or down from there. This past year’s index went up in most of March, then hit a peak only to come down rapidly through the end of March, April up till May. Starting May, that index started going back up passing 85 in mid-May and continuing. By July 18th, the nationwide recovery index had reached 106.6 bringing the index above the pre-COVID recovery benchmark for the first time since March. By November 7th, the index reached 8.0 points above the pre-COVID baseline, even with a decrease of 1.4 points from the week prior.

The weeks following showed a fall in the housing demand index as the demand-supply imbalance continued to shorten. The rate of increase for housing demand is expected to slow down in the coming few months yet is anticipated to spike again by Spring 2021.

With the festive holidays in season, it is hard to say if sellers will continue to list properties through the winter season with the rise of coronavirus cases from travel and gatherings. As the winter season is normal for slowdown of buying activity, we may see a decline until the holidays are over.

In conclusion, data reveals that the housing supply will need to match the massive growth of demand which suggests that the market will be headed back towards balance. Until more measures come through, the listing price growth and the pace of sales most likely will remain unchanged. Unless there is another global disaster on the heels of COVID-19, data indicates a continuation of a stable to strong residential real estate market.