12/4 Market Update
Economists, government officials, and health professionals are preparing for a rough winter and then a very promising spring/summer. What does that mean for real estate? Not all experts agree.
Let’s talk about 2021 projections.
National Real Estate:
At 6.85 million, 2020 is expected to have 3% more existing home sales than in 2019. (would you have believed that in May?!?) Dr. Lawrence Yun, Chief Economist for NAR expects a 9% increase in existing home sales in 2021 over 2020. New builds increased 20% year over year in 2020 and Dr. Yun is predicting a 23% increase in new builds in 2021, year over year.
“My economic forecast is that in 2020, it is a recession, but in 2021 with the vaccine discovery and availability, it will be positive. The interest rate environment will continue to be low, inflation not really a problem. Mortgage rates should remain stable near 3 percent all the way through 2021.”
-Dr. Lawrence Yun
In the US there are about 140 million housing units. Of those, about 84 million are single-family homes. (Greater Phoenix has about 2 million housing units and just over 1.4 million single-family homes) Last week, for the first time in history, the number of single-family homes for sale nationwide dropped to just below 500,000. There were only 55,000 new listings to come on the market, fewer than the amount that came off the market. Past trends show that available listings typically drop 1-2% a week from Thanksgiving through the second week of January. It is likely we will end the year with 450,000 single-family homes available. Once we hit that, 0.5% of single-family homes will be listed for sale. With these inventory levels, home prices will continue to increase. (Altos Research)
With ever-decreasing inventory, transaction volumes could drop. Given the strong buyer demand, any drops would likely small. In October, on average, there were nearly 3.5 offers written for each property that went into escrow. (Matthew Gardner)
Economy:
GDP growth in Q4 2020 and Q1 2021 will likely be down. By Q2 2021 and certainly by Q3 2021 we will be back solidly moving in a positive direction with economic growth (barring any unforeseen circumstances).
Economist Elliott Pollack said, “Prior to COVID-19, the economy was in the longest expansion in U.S. history. Until COVID-19, there was no end in sight. And now, thanks to the effects of COVID-19 on the economy, the spread between potential GDP and actual GDP is huge. It will take at least three years to get back to where the economy should be. Look for a quick burst but then continued above-normal growth for that entire period.”
The chief economists from Redfin, Realtor.com, and KCM all stated that once the population is vaccinated and people are out spending money on services again, the increased economic strength could drive interest rates up, thus hurting affordability and ultimately decreasing buyer demand.
Provided there is not another national lockdown, growth is expected throughout 2021. Dr. Yun said of consumer decisions, “Are the mortgage rates low, are the prices right, is the inventory available? It’s all about the economic factors [and] housing conditions.”
Lending:
“Assuming an effective vaccine”, Mike Fratantoni with the MBA says, “Our expectation is that 2021 will most likely be a year of a continued, but slow economic recovery, with a modest rise in mortgage rates, and the stubborn, ongoing housing market conundrum of inadequate supply in relation to demand.”
“Rising yields on government bonds reflect new optimism about the U.S. economy. But the trend could bring unwelcome news for mortgage borrowers: Higher rates on 10-year Treasury notes generally mean rising rates for 30-year mortgages.” said Jeff Ostrowski, Bankrate Senior Mortgage Reporter
David Childers of Keeping Current Matters believes that these interest rate projections may be revised upwards in the coming months.
Jobs:
Greater Phoenix remains the best performing major employment market in the country and has regained two thirds of all the jobs lost during the shutdown. Nationwide about 55% of jobs have recovered. (Elliott Pollack)
Forbearance:
To benefit from the CARES Act forbearance plans, borrowers must be enrolled by 12/31/2020.
After 25 weeks without having an increase in loans in forbearance, last week was the second week in row with increases. We went from 5.48% to 5.54% of loans are in forbearance which is around 2.8 million loans. The biggest reason for the increase is that fewer borrowers are leaving their forbearance programs than in the previous weeks. Other reasons are that re-entries increased slightly and loans in extension increased slightly. Initial entries remained about the same.
Borrowers in forbearance are protected against penalties and foreclosure even when late on their payments, however they are still counted in the delinquency numbers.
With 3.4 million mortgage delinquencies, the rate declined to 6.44%, the lowest level since March. (FHFA)
The AZ Market:
ASU forecasts that Arizona will be back to economic normalcy by the end of 2021.
Greater Phoenix has about 4 buyers for every available listing. In order for the Phoenix market to be balanced we would need 25,000-35,000 active listings, we have 7,300. Aside from New York and San Francisco all other major metros are in similar situations. There are some areas in the country that have sufficient inventory for the demand giving us a national average of about 3 buyers for every listing nationwide.
In November, builder DR Horton purchased 2,783.13 acres of state land just south of Apache Junction. Bidding started at $68 million and the land sold for $245.5 million. (Daily Independent)
Real Estate News:
- For the fourth time, FHFA extended the foreclosure and eviction moratoriums to January 31, 2021. (HousingWire)
- Offerpad partners with New Home Star, the country’s largest seller of private homes. Partnership is effective immediately in Florida; Phoenix and San Antonio are the next two markets to launch. (Inman)
- Airbnb files with the SEC to go public via IPO with a valuation of $35 billion. (Inman)
- Rumors are flying that real estate brokerage Compass has begun prepping for its own IPO. (Bloomberg)
Real Estate Trends:
- Mortgage interest rates have hit all-time lows 14 times this year. (MBA)
- In greater Phoenix single family new homes sales were up 19% in October, year over year. (Jim Belfiore)
- 19% of buyers paid cash in 2019 and 2020. (HousingWire)
- Demand for primary homes is up 50% and for second homes is up 100%, year over year (Redfin)
- Nationwide, condo sales in October were up nearly 23% after a 50% decrease in March-May. (Redfin)
Final Thoughts:
Continue to be mindful of the headlines. Misleading messages harm consumers and consumer sentiment matters. The low inventory may lead to a drop in sales, but that is not due to lack of interest, it is due to lack of supply. In 1710, writer Jonathan Swift wrote, “Falsehood flies, and the Truth comes limping after it.” Today, 310 years later, this statement remains valid.
