Let’s take a look at the housing market recovery index that touches on demand, supply, price and time on market.
We see that slight dip coming back. We’ve settled into a very nice market. Pending deals are up, showings are up, purchase applications are up. The one thing down right now is inventory.
Looking at forbearance, you can see the green at 54.6% of people who paid in full. Then the blue, 30.7% went through a modification of some kind. Finally the red, 14.7% are in some form of trouble – they don’t have a loss mitigation plan yet. It is some of this 14.7% that has the chance of becoming a foreclosure.
The CFPB just came out with a step-by-step guide to asking about mortgage forbearance during coronavirus, which we have included here.
A common question these days is: Are prices going up too fast right now? Craig Lazzara said, in regards to the Case Shiller Report, “Housing prices were notably – and I’m tempted to say ‘very’ – strong in September. The National Composite Index gained 7% relative to its level a year ago… Our three monthly readings since June of this year have all shown accelerating growth in home prices and September’s results are quite strong.” If we look at compound annual home price appreciation going all the way back to 1991, we see an average of 3.8% in annual home price appreciation. If we look back to 2012, we see that’s been considerably higher – 6.1% appreciation. That’s quite a jump. If we look at it since 2012, it’s not as much of a jump but still above that.
Let’s look at historic appreciation since 2000, 3.8%, and assume that the housing crash doesn’t happen and just go through this “normal” market every year. Obviously, that’s not reality, but we also overlaid what actually did happen.
We can see that the actual appreciation is outpacing the historic appreciation in this year. That brings us to the history of inventory and home prices over the last ten years.
When the supply of homes on market goes down, the price has goes up. And even where we stand today, with limited supply across the country, we are seeing home prices go up for a lot of different reasons. Low interest rates are fueling buyer demand. The needs, the different needs that people have through the pandemic for housing, is fueling buyer demand. That lack of supply is keeping upward pressure on prices, pushing them higher – 7% higher year over year.
“Such a frenzy of activity reminiscent of 2006 raises questions about a bubble and the potential for a painful crash. It’s on a lot of people’s minds. The answer? There is no comparison.”
– NAR’s Chief Economist Lawrence Yun
Back in 2006, dubious adjustable rate mortgages taxed many buyers’ budgets. Some loans didn’t even require income documentation. And today, buyers are taking out 30-year fixed rate mortgages. 14 years ago, there were 3.8 million homes listed for sale, and home builders were putting up about two million new units. Now, inventory is only about 1.5 million homes, and homebuilders are underproducing relative to historical averages. So, when we were back in the housing crash, that oversupply led to a lot of challenges in the market. Where are we at today? We’re in an undersupply scenario on a very different lending environment across the country and we’re seeing appreciation.
Another interesting headline is that mortgage debt in the country is soaring to close to $10 trillion, so let’s look back at the Federal Reserve Bank mortgage balances, the largest component of household debt. It rose by 85 billion in the third quarter and sat at 9.86 trillion on September 30th. Mortgage originations, which include refinances, were at 1.05 trillion, the second highest volume in the history of the series, and second only to the historic refinance boom of the third quarter of 2003. So, as we start to see all these refinances come in, we’re seeing more mortgage debt. Now, it’s important to remember that mortgage debt is going to rise as more homes are built, and as those homes appreciate and more homes are sold. So, what we want to really look at is the debt service ratio.
If we look all the way back to 1980, where we stand today is lower than where we were in the ‘80s and ‘90’s and certainly in the early 2000’s when we peaked at over 7%. Today we sit at 3.72% of disposable income committed to a mortgage payment. Why is that? That is the effect of lower interest rates and rising wages. So that should give some perspective as you start to see that headline, and as people start to have questions on what’s happening not only in prices but in mortgage.
I think we’re all ready to get rid of 2020 and move into a new year.
“Above all, the 2021 outlook hinges on the course of the coronavirus. Both the recent virus surge and the election make government emergency relief more likely… Next year will also start to show whether two big pandemic shifts will endure – from services to goods and from in-office to remote work… Even small shifts in these trends, if permanent, could cause big changes in how business hire, how job seekers search, where people live and how much they earn.”
– Jed Kolko
Freddie Mac has come out with their projections through the fourth quarter of next year. And they’re saying that we’re going to stay around 3% for a 30-year fixed. Definitely a favorable lending environment for those looking to purchase a home as compared to the last couple of years. This year we’ve gone through 14 lows in the average 30-year fixed, as measured by Freddie Mac.
“We expect sales in 2021 to come in 7% above 2020 levels“… Following a more normal seasonal trend in building momentum through the spring and sustaining the pace in the second half of the year. While home sales are expected to lose some momentum over the last months of 2020, a shallower than normal seasonal slowdown creates a higher base of activity leading into 2021 that is roughly maintained for the first half of the year. As vaccines for the coronavirus become broadly available to the public, and economic growth reflects the resumption of a more normal pattern of consumer spending, home sales gain even more in the second half of the year.”
– Danielle Hale
“Any foreclosure increase will likely be absorbed by the market. It will not lead to any price declines.”
– Lawrence Yun
Finally, let’s take a look at how the residential market in Tallahassee wrapped up: