According to the latest report from Black Knight, Inc., a well-respected provider of data and analytics for mortgage companies, 6.48 million households have entered a forbearance plan as a result of financial concerns brought on by the COVID-19 pandemic. Here’s where these homeowners stand right now:
- 2,543,000 (39%) are current on their payments and have left the program
- 625,000 (9%) have paid off their mortgages
- 434,000 (7%) have negotiated a repayment plan and have left the program
- 2,254,000 (35%) have extended their original forbearance plan
- 512,000 (8%) are still in their original forbearance plan
- 116,000 (2%) have left the program and are still behind on payments
This shows that of the almost 3.72 million homeowners who have left the program, only 116,000 (2%) exited while they were still behind on their payments. There are still 2.77 million borrowers in a forbearance program. No one knows for sure how many of those will become foreclosures. There are, however, three major reasons why most experts believe there will not be a tsunami of foreclosures as we saw during the housing crash over a decade ago:
- Almost 30% of borrowers in forbearance are still current on their mortgage payments.
- Banks likely don’t want to repeat the mistakes of 2008-2012 when they put large numbers of foreclosures on their books. This time, many will instead negotiate a modification plan with the borrower, which will enable households to maintain ownership of the home.
- With the significant equity homeowners have today, many will be able to sell instead of going into foreclosure.
Will there be foreclosures coming to the market? Yes. There are hundreds of thousands of foreclosures in this country each year. People experience economic hardships, and in some cases, are not able to meet their mortgage obligations.
Here’s the breakdown of new foreclosures over the last three years, prior to the pandemic:
- 2017: 314,220
- 2018: 279,040
- 2019: 277,520
Through the first three quarters of 2020 (the latest data available), there were only 114,780 new foreclosures. If 10% of those currently in forbearance go to foreclosure, 275,000 foreclosures would be added to the market in 2021. That would be an average year as the numbers above show.
What happens if the number is more than 10%?
If we do experience a higher foreclosure rate from those in forbearance, most experts believe the current housing market will easily absorb the excess inventory. We entered 2020 with 1,210,000 single-family homes available for purchase. At the time, that was low and problematic. The market was experiencing high buyer demand, and we needed more houses to meet that demand. We’re now entering 2021 with 320,000 fewer homes for sale, while buyer demand remains extremely strong. This means the housing market has the capacity to soak up a lot of inventory.
There will be more foreclosures entering the market later this year, especially compared to the record-low numbers in 2020. However, the market will be able to handle the increase as buyer demand remains strong.
The real estate market is expected to do very well in 2021, with mortgage rates that are hovering at historic lows and forecasted by experts to remain favorable throughout the year. One challenge to the housing industry, however, is the lack of homes available for sale today. Last week, the National Association of Realtors (NAR) released their Existing Home Sales Report, which shows that the inventory of homes for sale is currently at an all-time low. The report explains:
“Total housing inventory at the end of December totaled 1.07 million units, down 16.4% from November and down 23% from one year ago (1.39 million). Unsold inventory sits at an all-time low 1.9-month supply at the current sales pace, down from 2.3 months in November and down from the 3.0-month figure recorded in December 2019. NAR first began tracking the single-family home supply in 1982.”
(See graph below):
What Does This Mean for You?
If You’re a Buyer:
Be patient during your home search. It may take time to find a home you love. Once you do, however, be ready to move forward quickly. Get pre-approved for a mortgage, be prepared to make a competitive offer from the start, and know that a shortage in inventory could mean you’ll enter a bidding war. Calculate just how far you’re willing to go to secure a home and lean on your real estate professional as an expert guide along the way. The good news is, more inventory is likely headed to the market soon, Lawrence Yun, Chief Economist at NAR, notes:
“To their credit, homebuilders and construction companies have increased efforts to build, with housing starts hitting an annual rate of near 1.7 million in December, with more focus on single-family homes…However, it will take vigorous new home construction in 2021 and in 2022 to adequately furnish the market to properly meet the demand.”
If You’re a Seller:
Realize that, in some ways, you’re in the driver’s seat. When there’s a shortage of an item at the same time there’s a strong demand for it, the seller is in a good position to negotiate the best possible terms. Whether it’s the price, moving date, possible repairs, or anything else, you’ll be able to request more from a potential purchaser at a time like this – especially if you have multiple interested buyers. Don’t be unreasonable, but understand you probably have the upper hand.
The housing market will remain strong throughout 2021. Know what that means for you, whether you’re buying, selling, or doing both.
Housing inventory is at an all-time low. Realtor.com just reported that there are 39% fewer homes for sale today than there were last year. At the same time, buyer demand remains strong. In a recent newsletter, research analyst Ivy Zelman explained:
“Although the headwind of severe supply constraints in most markets has contributed to slight moderation in seasonally-adjusted and year-over-year new pending contract growth for two consecutive months (albeit still growing strongly), the underlying strength of buyer demand, particularly for this time of year, remains apparent.”
Whenever there’s a shortage in the supply of an item that’s in high demand, the price of that item increases. That’s exactly what’s happening in the real estate market right now. As a result, home values are surging.
This is great news if you’re planning to sell your house. On the other hand, as either a first-time or repeat buyer, this may instead seem like troubling news. Purchasers, however, should realize that the price of a house is not as important as the monthly cost. Here’s how it breaks down.
There are several factors that influence the cost of a home. Two of the major ones are:
- The price of the home
- The mortgage rate at which a buyer can borrow the funds necessary to purchase the home
How do these factors impact affordability?
The National Association of Realtors (NAR) produces a Housing Affordability Index which takes these factors into account and determines an overall affordability score for housing. According to NAR, the index:
“…measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data.”
Their methodology states:
“To interpret the indices, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment.”
So, the higher the index, the more affordable it is to purchase a home. Here’s a graph of the index going back to 1990:The blue bar represents today’s affordability. We can see that homes are more affordable now than they were from:
- 1990 to 2008
- 2017 to 2018
Buying a home today is just a little less affordable than it was last year, but still very affordable compared to historical housing market trends.
Note: During the housing crash from 2009 to 2015, distressed properties (foreclosures and short sales) dominated the market. Those properties were sold at large discounts not seen before in the housing market.
Why are homes still affordable today?
The number one factor impacting today’s homebuying affordability is record-low mortgage rates. There’s no doubt that prices are on the rise. However, mortgage rates have fallen dramatically. Last week, Freddie Mac announced that the average interest rate for a 30-year fixed-rate mortgage was 2.72%. Last year at this time, the average rate was 3.68%.
If you’re considering purchasing your first home or moving up to the one you’ve always hoped for, it’s important to understand how affordability plays into the overall cost of your home. With that in mind, buying while mortgage rates are as low as they are now may save you quite a bit of money over the life of your home loan.
At this point, home purchase affordability is still in a historically good place. However, we need to watch price increases going forward. As Mark Fleming, Chief Economist at First American, noted in a recent post:
“Faster nominal house price appreciation can erode, or even eliminate, the boost in affordability from lower mortgage rates, especially if household income growth doesn’t keep up.”
In a year when we’re learning to do so much remotely, homebuying is no exception. From going to work to attending school, grocery shopping, and even seeing our doctors online, digital practices have changed the way we live.
This year, rather than delaying their home purchases, buyers – alongside their trusted real estate professionals – turned to the Internet to do more than just a typical home search. In some cases, they bought homes without even stepping foot inside. Jessica Lautz, Vice President of Demographics and Behavioral Insights at the National Association of Realtors (NAR), says:
“People really didn’t buy houses sight-unseen, traditionally. It’s still not a huge number, but it has gone up, and we have definitely seen that trend accelerate.”
According to NAR, throughout the coronavirus pandemic, one in every 20 homebuyers purchased a house sight-unseen.
How Your Real Estate Agent Will Pave the Way
Today, real estate professionals are using digital practices to help homebuyers and sellers walk through many steps in the process virtually. While following the regulations set forth by the CDC and all local guidelines, this year, agents quickly empowered buyers and sellers with virtual tours, 3D floor plans, high-quality photos, videos, online open houses, and more. For those who had homebuying and selling needs in 2020, trusted advisors made it possible in many markets.
Here’s a graph showing some of the digital options buyers found most helpful in their searches this year, as noted by NAR in the 2020 Profile of Home Buyers and Sellers:The report also mentions that buyers this year generally searched for eight weeks. Throughout that search, they viewed a median of 9 homes, but not all of them were seen in-person. Yahoo Finance notes:
“Buyers viewed five homes online and four homes in-person during the pandemic, compared to nine homes in-person in 2019, according to NAR. This was the first year NAR asked buyers to specify the number of homes toured virtually.”
In true 2020 fashion, virtual practices helped buyers safely narrow down their top choices, so they didn’t have to unnecessarily walk into more homes than they needed to see throughout the process. Here’s the breakdown by region:At a time when health and safety are top priorities, current technology is making it possible for buyers and sellers to move their real estate plans forward at their own comfort levels, even through a worldwide pandemic. For many, this means buyers no longer have to physically tour every home they want to see, and sellers don’t need to open their doors over and over again throughout the process. Safety can come first, and trusted real estate professionals are here to help.
If you’re ready to make a move, you may not have to press pause on your plans this season. Let’s connect to determine the safe and effective options to buy or sell a home in our area or wherever you’re looking to move.
The demand for homes this year is extraordinary as record-breaking numbers of hopeful buyers continue to shop for homes. In a normal year, the peak homebuying season comes to a close by early fall. However, 2020 is anything but a normal year, and the housing market is no exception. Lawrence Yun, Chief Economist for the National Association of Realtors (NAR), explains:
“Home sales traditionally taper off toward the end of the year, but in September they surged beyond what we normally see during this season…I would attribute this jump to record-low interest rates and an abundance of buyers in the marketplace, including buyers of vacation homes given the greater flexibility to work from home.”
What’s drawing so many buyers to the market?
“Mortgage rates today are on average more than a full percentage point lower than rates over the last five years.”
If you’re a homebuyer right now, there’s no question that you want to take advantage of this opportunity – and you’re not alone. Competition among buyers is definitely increasing as more buyers enter the market and mortgage interest rates remain so low.
Who’s planning to buy a home right now?
Today’s affordability is appealing to all generations and seems to be especially attractive to younger buyers who want to begin growing their wealth through homeownership. There’s a distinct increase this year in the percentage of those in younger generations searching for homes. The National Association of Home Builders (NAHB) notes:
“Between the third quarters of 2019 and 2020, the share of Gen Z adults planning a home purchase rose three points to 14%. Millennials, however, are the generation most likely to be considering buying a home (22%).”
Here’s a graph showing the year-over-year increase in homebuying interest by generation:According to Mark Fleming, Chief Economist for First American, millennials are reaching their prime home-buying years, a likely driver in this increase:
“Record low mortgage rates and millennials continuing to age into their prime home-buying years has boosted demand, but a lack of housing supply remains a challenge.”
What’s the biggest challenge for today’s buyers?
Finding a home, however, as Fleming notes above, is clearly a challenge today. Yun also explains:
“There is no shortage of hopeful, potential buyers, but inventory is historically low.”
With so many buyers actively searching for homes this year and so few houses for sale, it’s more important than ever to work with a trusted real estate professional to navigate today’s market. From pre-approval to bidding wars and guidance on down payment assistance resources, having an agent by your side might make the difference in your ability to land your dream home.
Let’s connect if you’re ready to buy a home. More buyers mean more competition, so you need an expert guide to help you stand out from the crowd.
Back in March, as the nation’s economy was shut down because of the coronavirus, many were predicting the real estate market would face a major collapse. Some forecasts called for a 15-20% decline in transactions. However, six months later, it seems as though the housing market has fully recovered.
Mark Fleming, Chief Economist at First American, announced last week:
“Since hitting a low point during the initial stages of the pandemic, the only major industry to display immunity to the economic impacts of the coronavirus is the housing market. Housing has experienced a strong V-shaped recovery and is now exceeding pre-pandemic levels.”
The Economic & Strategic Research Group at Fannie Mae upgraded its forecast for home sales last week:
“Housing data over the past month continued to show a strong V-shape rebound, helping drive the broader economy. Existing home sales jumped to a pace not seen since 2006…We have substantially upgraded our forecasts for both new and existing home sales. For 2020, total home sales are now expected to be 1.3% higher than in 2019.”
The National Association of Realtors (NAR) agrees. In their last Pending Sales Report, NAR shared projections from Chief Economist Lawrence Yun:
“Yun forecasts existing-home sales to ramp up to 5.8 million in the second half. That expected rebound would bring the full-year level of existing-home sales to 5.4 million, a 1.1% gain compared to 2019.”
Yun’s forecast for 2021 was even more optimistic, stating, “Home sales will ramp up again next year, increasing between 8% – 12%.”
The housing market has come roaring back and looks as though it may even surpass last year’s success.
Frank Martell, President and CEO of CoreLogic, hit the nail on the head when he said, “On an aggregated level, the housing economy remains rock solid despite the shock and awe of the pandemic.”
When shelter-in-place orders brought the economy to a screeching halt earlier this year, many believed the residential housing market would follow suit. Countless analysts predicted buyer demand would disappear and home values would depreciate for the first time in almost a decade. That, however, didn’t happen. It appears the opposite is taking place.
After the bottom fell out of the real estate market immediately following the shutdown, it has come roaring back – and seems to still be gaining steam. Here’s a look at two recent reports – one from the National Association of Home Builders (NAHB) and one from the National Association of Realtors (NAR) – showing this growing strength.
Builder Confidence Hits All-Time High
Last week, it was reported that applications for new home purchases with home builders were 39% higher than in July of 2019. That has builder confidence soaring.
Each month, NAHB releases its Housing Market Index, a survey of NAHB members who rate market conditions for the sale of new homes at the present time and over the next six months, as well as prospective buyer traffic for new homes.
This month, they reported that builder confidence in the market for newly-built single-family homes increased to the highest reading in the 35-year history of the series. NAHB Chairman, Chuck Fowke, explained:
“The demand for new single-family homes continues to be strong, as low interest rates and a focus on the importance of housing has stoked buyer traffic to all-time highs…Housing has clearly been a bright spot during the pandemic and the sharp rebound in builder confidence over the summer has led NAHB to upgrade its forecast for single-family starts, which are now projected to show only a slight decline for 2020.”
The number of newly constructed homes being built will be almost at the same level as last year, even though the economic shutdown crushed home building earlier in the year.
Existing Homes Are Also Selling Like Hotcakes
Last Friday, NAR released its Existing Home Sales Report. The report revealed that month-over-month sales increased by 24.7%, setting another record for the category. The Wall Street Journal reported that the increase crushed expert forecasts:
“Economists surveyed by The Wall Street Journal expected a 14.2% monthly increase in sales of previously-owned homes, which make up most of the housing market.”
Home sales increased by 8.7% year-over-year.
Lawrence Yun, Chief Economist for NAR, explained how the resale market is just as hot as the new construction market:
“The housing market is well past the recovery phase and is now booming with higher home sales compared to the pre-pandemic days. With the sizable shift in remote work, current homeowners are looking for larger homes and this will lead to a secondary level of demand even into 2021.”
In addition, the Housing Market Recovery Index, which is released monthly by realtor.com, also showed the market is recovering nicely. The latest index reading was 104.8, which means the housing market is doing better than it was in January and February of this year. As a reference, the highest point in the index was a 106.5 in early March, just prior to the health crisis setting in.
Both the newly constructed and existing home sale markets are posting numbers greater than a year ago. Real estate is back. If you’re thinking of buying or selling, let’s connect so you have the expert counsel you need along the way.
With the strength of the current housing market growing every day and more Americans returning to work, a faster-than-expected recovery in the housing sector is already well underway. Regardless, many are still asking the question: will we see a wave of foreclosures as a result of the current crisis? Thankfully, research shows the number of foreclosures is expected to be much lower than what this country experienced during the last recession. Here’s why.
According to Black Knight Inc., the number of those in active forbearance has been leveling-off over the past month (see graph below):Black Knight Inc. also notes, of the original 4,208,000 families granted forbearance, only 2,588,000 of these homeowners got an extension. Many homeowners have once again started to pay their mortgages, paid off their homes, or never went delinquent on their payments in the first place. They may have applied for forbearance out of precaution, but never fully acted on it (see graph below):The housing market, and homeowners, therefore, are in a much better position than many may think. Much of that has to do with the fact that today’s homeowners have more equity than most realize. According to John Burns Consulting, over 42% of homes are owned free and clear, meaning they are not tied to a mortgage. Of the remaining 58%, the average homeowner has $177,000 in equity. That number is keeping many homeowners afloat today and giving them options to avoid foreclosure.
While ATTOM Data Solutions indicates that there is a potential for the number of foreclosures to increase throughout the country, it’s important to understand why they won’t rock the housing market this time around:
“The United States faces a possible foreclosure surge over the coming months that could more than double the number of households threatened with eviction for not paying their mortgages.”
That number may sound massive, but it is actually much smaller than it seems at first glance. Today’s actual quarterly active foreclosure number is 74,860. That’s over 7.5x lower than the number of foreclosures the country saw at the peak of the housing crash in 2009. When looking at the graph below, it’s clear that even if the number of quarterly foreclosures today doubles, as ATTOM Data Solutions indicates is a possibility (not a given), they will only reach what historically-speaking is a normalized range, far below what up-ended the housing market roughly 10 years ago.Equity is growing, jobs are returning, and the economy is slowly recovering, so the perfect storm for a wave of foreclosures is not realistically in the housing market forecast. As Odeta Kushi, Deputy Chief Economist for First American notes:
“Alone, economic hardship and a lack of equity are each necessary, but not sufficient to trigger a foreclosure. It is only when both conditions exist that a foreclosure becomes a likely outcome.”
While our hearts are with anyone who may end up in foreclosure as a result of this crisis, we do know that today’s homeowners have more options than they did 10 years ago. For some, it may mean selling their house and downsizing with that equity, which is a far better outcome than foreclosure.
Homeowners today have many options to avoid foreclosure, and equity is surely helping to keep many afloat. Even if today’s rate of foreclosures doubles, it will still only hit a mark that is more in line with a historically normalized range, a very good sign for homeowners and the housing market.
Today, home prices are appreciating. When we hear prices are going up, it’s normal to think a home will cost more as the trend continues. The way the housing market is positioned today, however, low mortgage rates are actually making homes more affordable, even as prices rise. Here’s why.
According to the Mortgage Monitor Report from Black Knight:
“While home prices have risen for 97 consecutive months, July’s record-low mortgage rates have made purchasing the average-priced home the most affordable it’s been since 2016.”
How is that possible?
Black Knight continues to explain:
“As of mid-July, it required 19.8% of the median monthly income to make the mortgage payment on the average-priced home purchase, assuming a 20% down payment and a 30-year mortgage. That was more than 5% below the average of 25% from 1995-2003.
This means it currently requires a $1,071 monthly payment to purchase the average-priced home, which is down 6% from the same time last year, despite the average home increasing in value by more than $12,000 during that same time period.
In fact, buying power is now up 10% year-over-year, meaning the average home buyer can afford nearly $32,000 more home than they could at the same time last year, while keeping their monthly payment the same.”
This is great news for the many buyers who were unable to purchase last year, or earlier in the spring due to the slowdown from the pandemic. By waiting a little longer, they can now afford 10% more home than they could have a year ago while keeping their monthly mortgage payment unchanged.
With mortgage rates hitting all-time lows eight times this year, it’s now less expensive to borrow money, making homes significantly more affordable over the lifetime of your loan. Mark Fleming, Chief Economist at First American, shares what low mortgage rates mean for affordability:
“In July, house-buying power got a big boost as the 30-year, fixed mortgage rate made history by moving below three percent. That drop in the mortgage rate from 3.23 percent in May to 2.98 percent in July increased house-buying power by nearly $15,000.”
The map below shows the last time homes were this affordable by state:In six states – Arkansas, Iowa, Kentucky, Louisiana, Maryland, and West Virginia – homes have not been this affordable in more than 25 years.
If you’re thinking of making a move, now is a great time to take advantage of the affordability that comes with such low mortgage rates. Whether you’re thinking of purchasing your first home or moving into a new one and securing a significantly lower mortgage rate than you may have on your current house, let’s connect today to determine your next steps in the process.
So far, it’s been quite a ride this year, and our nation has truly seen its fair share of hurdles. From COVID-19 to record unemployment and then the resulting recession, just to name a few, the second quarter of 2020 has had more than a few challenges. Amidst the many roadblocks, however, the U.S. homeownership rate rose again, signaling great strength in the recovery of the housing market and an indication that even in a time of crisis, Americans still feel confident about buying a home.
Yesterday, the U.S. Census Bureau announced:
“The homeownership rate of 67.9 percent was 3.8 percentage points higher than the rate in the second quarter 2019 (64.1 percent) and 2.6 percentage points higher than the rate in the first quarter 2020 (65.3 percent).”
The increase is also represented by race and ethnicity of the householder:There are many reasons why the homeownership rate in this country is rising, and one of the key factors is historically-low mortgage rates. Rates hovering at all-time lows are helping to drive affordability and enabling more potential homeowners to enter the market today. According to Ralph McLaughlin, Chief Economist for Haus:
“Mortgage rates are the icing on the cake for households that were thinking about buying…They found an unexpected opportunity during the worst economic downturn America has seen since the Great Depression.”
In addition, many potential homebuyers have been using their time this year to search for homes that offer more space than their current rental apartments. Many of these homebuyers are younger and, as noted by Odeta Kushi, Deputy Chief Economist at First American, are the buyers driving the homeownership rate in an upward direction:
“Big jump in the homeownership rate today, mostly driven by younger households. We saw a spike in the number of owners, and a decline in the number of renters. This is the highest rate of homeownership since 2008.”
This growth is outstanding news for the housing market and for those who have recently found their new homes. If homeownership is on your shortlist this year, maybe now is a great time to meet with a real estate professional to evaluate your current situation. Perhaps historically low mortgage rates can help you to become a homeowner too.
If you’re thinking of buying a home this year, let’s connect today to take your dream one step closer to reality.
Announcement from the census: As a result of the coronavirus pandemic (COVID-19), data collection operations for the CPS/HVS were affected during the second quarter of 2020. In-person interviews were suspended for the duration of the second quarter and replaced with telephone interview attempts when contact information was available. If the Field Representative was unable to get information on the sample unit, the unit was made a Type A no interview (no one home, refusal, etc.). See the FAQ for more information.