Is the Housing Market headed for a Crash?

Dated: May 26 2021

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Epic Low Inventory Coupled with Pent-up Buyer Demand and Low Interest Rates

There are a variety of reasons for the epic low inventory levels we have been experiencing.  Here are the top reasons most homeowners have been hesitant to sell which in turn has resulted in seriously low inventory:

1.     COVID-19 pandemic health concerns.  With the rollout of vaccines and easing of restrictions nationwide, we should start to see an uptick in the number of homes coming on the market in the second half of this year.

2.     Recovery of the economy & unemployment concerns.  Many people have decided to stay put until they are comfortable not only with COVID concerns but also the impact to the local economy and their jobs/income.

3.     Mortgage forbearance and tenant evictions have been extended through June.  Once these measures expire, we hope to see more homes come on the market from both investors deciding to sell and some homeowners cashing out while they still have equity.

4.     Concerns about not being able to find a home to purchase after selling their existing home. Some sellers have elected to maximize their equity now and either rent a home for the next year, buy a new construction home or be competitive for their next purchase.


Another factor contributing to the lower inventory levels is a deficit in New Construction Homes.

“The main driver of the housing shortfall has been the long term decline in the construction of single family homes. That decline has resulted in the decrease and the supply of entry-level single family homes or starter homes.” Probably no bigger issue right now that we need to be talking about than the lack of available inventory across the country.”
~ Sam Khater, Freddie Mac


Why This is Not Like the Last Time (Great Recession)

1. Inventory Levels/ Months of Supply Comparison

Take a look at the graph below for single family housing units completed by decade, and you see the deficit over the last decade between 2010 and 2019, where just 6.5 million homes were completed in the country compared to the four previous decades.

Even with a slight rise in the number of houses for sale this spring, inventory remains near an all-time low (See graph below):

High buyer interest is creating a major imbalance between supply and demand, but as the small uptick in inventory shows, sellers are beginning to re-enter the market. Selling your house now enables you to take advantage of buyer demand and get the most attention for your house – before more listings come to the market later this year.

In the 4 years building up to the housing and mortgage crisis that lead to the "great recession", we saw a steady increase in the supply of homes reaching over 9 months of inventory in 2007 nationally. Compare that to our current situation with incredibly low inventory across the country as the chart below shows. As of May 2021, in most real estate markets across the country, we are experiencing below 1 months supply of homes available to purchase.



2. Home Price Appreciation Comparison


In 2020 according to CoreLogic, the average annual appreciation in the nation was 9.2% due to the low inventory caused primarily by the pandemic.  In the chart below, you will note that between 2017-2019, annual appreciation was a normal 5-6%.  Compare that to the years surrounding the lead up to 2006, the average annual appreciation was over 10%.



3. Majority of Homeowners Have Significant Equity


Homeowners have record levels of equity today. According to the latest CoreLogic Home Equity Report, the average equity of mortgaged homes is currently $204,000. In addition, 38% of homes do not have a mortgage, so the level of equity available to today’s homeowners is significant. The average gain in a mortgaged home over the last year has been $26,300. The map below shows the significant gain in home equity for each state.



4. Interest Rates Expected to Rise Over the Next Year+

As the chart below depicts, we have enjoyed historically low interest rates over the past several years. The majority of experts and economists are projecting that the mortgage interest rate will climb slightly in the coming year.

Danielle Hale, Chief Economist,

Our long-term view for mortgage rates in 2021 is higher. As the economic outlook strengthens, thanks to progress against coronavirus and vaccines plus a dose of stimulus from the government, this pushes up expectations for economic growth . . . .”

Lawrence Yun, Chief Economist, National Association of Realtors (NAR):

In 2021, I think rates will be similar or modestly higher . . . mortgage rates will continue to be historically favorable.”

Freddie Mac:

We forecast that mortgage rates will continue to rise through the end of next year. We estimate the 30-year fixed mortgage rate will average 3.4% in the fourth quarter of 2021, rising to 3.8% in the fourth quarter of 2022.”


5. Home Prices Also Projected To Continue to Rise



To alleviate some of the concerns, let’s look at what several financial analysts are saying about the current residential real estate market. Within the last thirty days, four of the major financial services giants came to the same conclusion: the housing market is strong, and price appreciation will continue. Here are their statements on the issue:

Goldman Sachs’ Research Note on Housing:

“Strong demand for housing looks sustainable. Even before the pandemic, demographic tailwinds and historically-low mortgage rates had pushed demand to high levels. … consumer surveys indicate that household buying intentions are now the highest in 20 years. … As a result, the model projects double-digit price gains both this year and next.”

Joe Seydl, Senior Markets Economist, J.P.Morgan:

“Homebuyers—interest rates are still historically low, though they are inching up. Housing prices have spiked during the last six-to-nine months, but we don’t expect them to fall soon, and we believe they are more likely to keep rising. If you are looking to purchase a new home, conditions now may be better than 12 months hence.”

Morgan Stanley, Thoughts on the Market Podcast:

“Unlike 15 years ago, the euphoria in today’s home prices comes down to the simple logic of supply and demand. And we at Morgan Stanley conclude that this time the sector is on a sustainably, sturdy foundation . . . . This robust demand and highly challenged supply, along with tight mortgage lending standards, may continue to bode well for home prices. Higher interest rates and post pandemic moves could likely slow the pace of appreciation, but the upward trajectory remains very much on course.”

Merrill Lynch’s Capital Market Outlook:

“There are reasons to believe that this is likely to be an unusually long and strong housing expansion. Demand is very strong because the biggest demographic cohort in history is moving through the household-formation and peak home-buying stages of its life cycle. Coronavirus-related preference changes have also sharply boosted home buying demand. At the same time, supply is unusually tight, with available homes for sale at record-low levels. Double-digit price gains are rationing the supply.”

Bottom Line:
Selling your house can be daunting, especially in a fast-paced market. However, the fact that we’re in such a strong sellers’ market clearly eliminates many common concerns.

When asking if they should buy a home, many potential buyers think of the nonfinancial benefits of owning a home. When asking when to buy, the financial benefits make it clear that doing so now is much more advantageous than waiting until next year.

Let’s connect today so you can learn more about the opportunities in our local area.

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Jan O'Brien

The O'Brien Morabbi Team at Fidacity Realty provides exceptional service and years of experience in the Las Vegas/Henderson Real Estate market to our clients who are buying or selling residential prop....

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