Why the Stock Market Correction Probably Won't Impact Home Values

With the housing crash of 2006-2008 still visible in the rear-view mirror, many are concerned the current correction in the stock market is a sign that home values are also about to tumble. What’s taking place today, however, is nothing like what happened the last time. The S&P 500 did fall by over fifty percent from October 2007 to March 2009, and home values did depreciate in 2007, 2008, and 2009 – but that was because that economic slowdown was mainly caused by a collapsing real estate market and a meltdown in the mortgage market.

This time, the stock market correction is being caused by an outside event (the coronavirus) with no connection to the housing industry. Many experts are saying the current situation is much more reminiscent of the challenges we had when the dot.com crash was immediately followed by 9/11. As an example, David Rosenberg, Chief Economist with Gluskin Sheff + Associates Inc., recently explained:

“What 9/11 has in common with what is happening today is that this shock has also generated fear, angst and anxiety among the general public. People avoided crowds then as they believed another terrorist attack was coming and are acting the same today to avoid getting sick. The same parts of the economy are under pressure ─ airlines, leisure, hospitality, restaurants, entertainment ─ consumer discretionary services in general.”

Since the current situation resembles the stock market correction in the early 2000s, let’s review what happened to home values during that time.

The S&P dropped 45% between September 2000 and October 2002. Home prices, on the other hand, appreciated nicely at the same time. That stock market correction proved not to have any negative impact on home values.

Bottom Line

If the current situation is more like the markets in the early 2000s versus the markets during the Great Recession, home values should be minimally affected, if at all.

Source

Three Reasons Why This is Not a Housing Crisis

In times of uncertainty, one of the best things we can do to ease our fears is to educate ourselves with research, facts, and data. Digging into past experiences by reviewing historical trends and understanding the peaks and valleys of what’s come before us is one of the many ways we can confidently evaluate any situation. With concerns of a global recession on everyone’s minds today, it’s important to take an objective look at what has transpired over the years and how the housing market has successfully weathered these storms.

1. The Market Today Is Vastly Different from 2008

We all remember 2008. This is not 2008. Today’s market conditions are far from the time when housing was a key factor that triggered a recession. From easy-to-access mortgages to skyrocketing home price appreciation, a surplus of inventory, excessive equity-tapping, and more – we’re not where we were 12 years ago. None of those factors are in play today. Rest assured, housing is not a catalyst that could spiral us back to that time or place.

According to Danielle Hale, Chief Economist at Realtor.com, if there is a recession:

“It will be different than the Great Recession. Things unraveled pretty quickly, and then the recovery was pretty slow. I would expect this to be milder. There’s no dysfunction in the banking system, we don’t have many households who are overleveraged with their mortgage payments and are potentially in trouble.”

In addition, the Goldman Sachs GDP Forecast released this week indicates that although there is no growth anticipated immediately, gains are forecasted heading into the second half of this year and getting even stronger in early 2021.

Both of these expert sources indicate this is a momentary event in time, not a collapse of the financial industry. It is a drop that will rebound quickly, a stark difference to the crash of 2008 that failed to get back to a sense of normal for almost four years. Although it poses plenty of near-term financial challenges, a potential recession this year is not a repeat of the long-term housing market crash we remember all too well.

2. A Recession Does Not Equal a Housing Crisis

Next, take a look at the past five recessions in U.S. history. Home values actually appreciated in three of them. It is true that they sank by almost 20% during the last recession, but as we’ve identified above, 2008 presented different circumstances. In the four previous recessions, home values depreciated only once (by less than 2%). In the other three, residential real estate values increased by 3.5%, 6.1%, and 6.6% (see below):

3. We Can Be Confident About What We Know

Concerns about the global impact COVID-19 will have on the economy are real. And they’re scary, as the health and wellness of our friends, families, and loved ones are high on everyone’s emotional radar.

According to Bloomberg,

“Several economists made clear that the extent of the economic wreckage will depend on factors such as how long the virus lasts, whether governments will loosen fiscal policy enough and can markets avoid freezing up.”

That said, we can be confident that, while we don’t know the exact impact the virus will have on the housing market, we do know that housing isn’t the driver.

The reasons we move – marriage, children, job changes, retirement, etc. – are steadfast parts of life. As noted in a recent piece in the New York Times, “Everyone needs someplace to live.” That won’t change.

Bottom Line

Concerns about a recession are real, but housing isn’t the driver. If you have questions about what it means for your family’s homebuying or selling plans, reach out to a local real estate professional to discuss your needs.

Source

Equity Gain Growing in Nearly Every State

Rising home prices have been in the news a lot lately, and much of the focus is on whether they’re accelerating too quickly and how sustainable the growth in prices really is. One of the often-overlooked benefits of rising prices, however, is the impact they have on a homeowner’s equity position.

Home equity is defined as the difference between a home’s fair market value and the outstanding balance of all liens on the property. While homeowners pay down their mortgages, the amount of equity they have in their homes climbs each time the value increases.

Today, the number of homeowners that currently have significant equity in their homes is growing. According to the Census Bureau, 38% of all homes in the country are mortgage-free.  In a home equity study, ATTOM Data Solutions revealed that of the 54.5 million homes with a mortgage, 26.7% of them have at least 50% equity. That number has been increasing over the last eight years.

CoreLogic also notes:

“…the average homeowner gained approximately $5,300 in equity during the past year.”

The map below shows a breakdown of the increasing equity gain across the country, painting a clear picture that home equity is growing in nearly every state.

Bottom Line

This may be the year to take advantage of your home equity by applying it forward, either as you downsize or as you move up to a new home.

Impact of the Coronavirus on the U.S. Housing Market

The Coronavirus (COVID-19) has caused massive global uncertainty, including a U.S. stock market correction no one could have seen coming. While much of the news has been about the effect on various markets, let’s also acknowledge the true impact it continues to have on lives and families around the world.

With all this uncertainty, how do you make powerful and confident decisions in regard to your real estate plans?

The National Association of Realtors (NAR) anticipates:

“At the very least, the coronavirus could cause some people to put home sales on hold.”

While this is an understandable approach, it is important to balance that with how it may end up costing you in the long run. If you’re considering buying or selling a home, it is key to educate yourself so that you can take thoughtful and intentional next steps for your future.

For example, when there’s fear in the world, we see lower mortgage interest rates as investors flee stocks for the safety of U.S. bonds. This connection should be considered when making real estate decisions.

According to the National Association of Home Builders (NAHB):

“The Fed’s action was expected but perhaps not to this degree and timing. And the policy change was consistent with recent declines for interest rates in the bond market. These declines should push mortgage interest rates closer to a low 3% average for the 30-year fixed rate mortgage.”

This is exactly what we’re experiencing right now as mortgage interest rates hover at the lowest levels in the history of the housing market.

Bottom Line

The full impact of the Coronavirus is still not yet known. It is in times like these that working with an informed and educated real estate professional can make all the difference in the world.

Keeping Current Matters

Thinking of Selling? Now May Be the Time.

The housing market has started off much stronger this year than it did last year. Lower mortgage interest rates have been a driving factor in that change. The average 30-year rate in 2019, according to Freddie Mac, was 3.94%. Today that rate is closer to 3.5%.

The Census Bureau also just reported the highest homeownership rate since 2014 for people under 35. This is evidence that owning their own home is becoming more important to Millennials as they reach the age where marriage and children are part of their lives.

According to the latest Realtors Confidence Index Survey from the National Association of Realtors (NAR), buyer demand across the country is strong. That’s not the case, however, with seller demand, which remains weak throughout most of the nation. Here’s a breakdown by state:

Demand for housing is high, but supply is extremely low. NAR also just reported that the actual number of homes currently for sale stands at 1.42 million, which is one of the lowest totals in almost three decades. Additionally, the ratio of homes for sale to the number purchased currently stands at 3.1 months of inventory. In a normal market, that number would be nearly double that at 6.0 months of inventory.

What does this mean for buyers and sellers?

Buyers need to remain patient in the search process. At the same time, buyers must be ready to act immediately once they find the right home.

Sellers may not want to wait until spring to put their houses on the market. With demand so high and supply so low, now is the perfect time to sell your house for the greatest dollar value and the least hassle.

Bottom Line

The real estate market is entering the year like a lion. There’s no indication it will lose that roar, assuming inventory continues to come to market.

Opportunity in the Luxury Market This Year

Homes priced in the top 25% of a price range for a particular area of the country are considered “premium homes.” At the start of last year, many of the more expensive homes listed for sale hadn’t seen as much interest, since much of the demand for housing over the past few years has come from first-time buyers looking for starter homes. It looks like buyer activity, however, is starting to show a shift in this segment.

According to the January Luxury Report from the Institute for Luxury Home Marketing (ILHM):

“In a snapshot of 2019, despite pessimism at the start of the year, the last quarter showcased a strengthening, with an upswing in the luxury market for sales in both the single family and condo markets.”

Momentum is growing, and those looking to enter the luxury market are poised for success in 2020 as well. With more inventory available at the upper-end, historically low interest rates, and increasing average wages, the stage is set for buyers with an interest in this tier to embrace the perfect move-up opportunity.

The report highlights the increase in buyer activity in this segment, resulting in growing sales toward the end of 2019:

“According to reports from many luxury real estate professionals, the significant increase in number of properties bought at the end of 2019 versus 2018 is reflective of an early 2019 holding pattern.

Many of early 2019’s prospective luxury buyers held off while waiting to see how prices would react to new tax regulations and other policy changes. Buyer confidence returned in late spring and compared to 2018, above average sales were reported in the final quarter of 2019.”

With evidence of strong buyer confidence, this is great news, as more homeowners are building equity and growing their net worth throughout the country:

“Many homeowners are now diversifying their wealth, owning several properties rather than a single mega mansion. In addition, there have been an increase number of home purchases taking place in smaller cities, reflecting the rising number of people relocating from major metropolises. Their property equity wealth or ability to pay high rental costs have afforded them the opportunity to purchase luxury properties in…secondary cities throughout North America.”

With a strong economy and a backdrop set for moving up this year, it’s a great time to explore the luxury market. Keep in mind, luxury can mean different things to different people, too. To one person, luxury is a secluded home with plenty of property and privacy. To another, it is a penthouse at the center of a bustling city. Knowing what characteristics mean luxury to you will help your agent understand what you’re after as you define the scope and location for the home of your dreams.

Bottom Line

If you’re thinking about upgrading your current house to a luxury home, or adding an additional property to your portfolio, reach out to a local real estate professional to determine if you’re ready to make your move.

A Look at Home Sales Across the Country by Region

Existing-home sales have been fluctuating in recent months, but one clear trend is emerging: First-time home buyers are making a move into the housing market as low mortgage rates prove to be an enticing incentive.

Lawrence Yun, chief economist for the National Association of REALTORS®, says he’s encouraged by the upturn in first-time home buyers in NAR’s latest existing-home sales report. First-timers comprised 32% of sales last month, up from 29% a year ago, according to NAR. “It’s good to see first-time buyers slowly stepping into the market,” Yun says. “The rise in the homeownership rate among younger adults under 35 and minority households means an increasing number of Americans can build wealth by owning real estate. Still, in order to further expand opportunities, significantly more inventory and home construction are needed at the affordable price points.”

The national homeownership rate has been rising strongly among people younger than 35, increasing from 35.4% in early 2019 to 37.6% in late 2019, Yun adds. Across age groups, existing-home sales are off to a “strong start” at 5.46 million for 2020, Yun says. “The trend line for housing starts is increasing and showing steady improvement, which should ultimately lead to more home sales.”

However, overall sales in January dipped month over month due mostly to the Western region of the country. Overall, existing-home sales—which include completed transactions for single-family homes, townhomes, condos, and co-ops—fell 1.3% compared to December. Still, home sales are up annually for the second consecutive month, with the latest numbers showing a 9.6% gain year over year in January, NAR’s housing report shows.

Here’s a closer look at key indicators from NAR’s latest housing report:

• Home prices: The median existing-home price for all housing types in January was $266,300, up 6.8% from a year ago. Prices rose in every region last month. “Mortgage rates have helped with affordability, but it is supply conditions that are driving price growth,” Yun says.

• Inventories: The total housing inventory at the end of January was 1.42 million units, down 10.7% from a year ago. Housing inventories are at the lowest levels for January since 1999. Unsold inventory is at a 3.1-month supply at the current sales pace.

• Days on the market: Forty-two percent of homes sold in January were on the market for less than a month. Properties stayed on the market for a median of 43 days in January, down from 49 days a year ago.

• All-cash sales: All-cash sales accounted for 21% of transactions in January, down from 23% a year ago. Individual investors and second-home buyers account for the largest bulk of cash sales. They purchased 17% of homes in January, up slightly from 16% a year ago.

• Distressed sales: Foreclosures and short sales comprised just 2% of sales in January, down from a year ago.

Regional Sales Snapshot

• Midwest: sales rose 2.4% in the region, reaching an annual rate of 1.29 million, up 8.4% from a year ago. Median price: $200,000, up 5.4% from January 2019

• South: sales increased 0.4% to an annual rate of 2.38 million in January, up 11.7% from a year ago. Median price: $229,000—a 6.3% increase from a year ago

• West: sales decreased 9.4% in January to an annual rate of 10.6 million, still an 8.2% increase compared to a year ago. Median price: $393,800, up 5.2% from a year ago

• Northeast: sales saw no major movement in January compared to December, remaining at an annual rate of 730,000. That is up, however, 7.4% from a year ago. Median price: $312,100—up 11.5% from a year ago

Source:  National Association of REALTORS®

The #1 Reason to List Your House Right Now

The success of the U.S. residential real estate market, like any other market, is determined by supply and demand. This means we need to look at how many potential purchasers are in the market versus the number of houses that are available to buy. With early 2020 housing data now rolling in, it’s quite evident there are two big stories impacting this year’s residential real estate market:

1. Buyer demand is already extremely strong
2. Housing supply is at a historically low level

Demand

ShowingTime is a firm that compiles data from property showings scheduled across the country. The latest ShowingTime Showing Index reveals how showings have increased in each of the country’s four regions for five months in a row.

Supply

Move.com also just released information indicating that the number of homes currently for sale has declined rapidly and now sits at the lowest level in almost a decade. They explained,

“National housing inventory declined 13.6 percent in January, the steepest year-over-year decrease in more than 4 years, pushing the supply of for sale homes in the U.S. to its lowest level since realtor.com began tracking the data in 2012.”

In response to these numbers, Danielle Hale, Chief Economist at realtor.com, said,

“Homebuyers took advantage of low mortgage rates and stable listing prices to drive sales higher at the end of 2019, further depleting the already limited inventory of homes for sale. With fewer homes coming up for sale, we’ve hit another new low of for sale-listings in January.”

The decrease in inventory impacted every price range, too. Here’s a graph showing the data released by move.com:

Bottom Line

Since there’s a historic shortage of homes for sale, putting your home on the market today could drive an excellent price and give you additional negotiating leverage when selling your house. Reach out to a local real estate professional to determine if listing your house now is your best move.

How the Housing Market Benefits with Uncertainty in the World

It’s hard to listen to today’s news without hearing about the uncertainty surrounding global markets, the spread of the coronavirus, and tensions in the Middle East, just to name a few. These concerns have caused some to question their investment plans going forward. As an example, in Vanguard’s Global Outlook for 2020, the fund explains,

“Slowing global growth and elevated uncertainty create a fragile backdrop for markets in 2020 and beyond.”

Is there a silver lining to this cloud of doubt?

Some worry this could cause concern for the U.S. housing market. The uncertainty, however, may actually mean good news for real estate.

Mark Fleming, Chief Economist at First American, discussed the situation in a recent report,

“Global events and uncertainty…impact the U.S. economy, and more specifically, the U.S. housing market…U.S. bonds, backed by the full faith and credit of the U.S. government, are widely considered the safest investments in the world. When global investors sense increased uncertainty, there is a ‘flight to safety’ in U.S. Treasury bonds, which causes their price to go up, and their yield to go down.”

Last week, in a HousingWire article, Kathleen Howley reaffirmed Fleming’s point,

“The death toll from the coronavirus already has passed Severe Acute Respiratory Syndrome, or SARS, that bruised the world’s economy in 2003…That’s making investors around the world anxious, and when they get anxious, they tend to sell off stocks and seek the safe haven of U.S. bonds. An increase in competition for bonds means investors, including the people who buy mortgage-backed bonds, have to take lower yields. That translates into lower mortgage rates.”

The yield from treasury bonds is the rate investors receive when they purchase the bond. Historically, when the treasury rate moves up or down, the 30-year mortgage rate follows. Here’s a powerful graph showing the relationship between the two over the last 48 years:

How might concerns about global challenges impact the housing market in 2020? Fleming explains,

“Even a small change in the 10-year Treasury due to increased uncertainty, let’s say a slight drop to 1.6 percent, would imply a 30-year, fixed mortgage rate as low as 3.3 percent. Assuming no change in household income, that would mean a house-buying power gain of $21,000, a five percent increase.”

Bottom Line

For a multitude of reasons, 2020 could be a challenging year. It seems, however, real estate will do just fine. As Fleming concluded in his report:

“Amid uncertainty, the house-buying power of U.S. consumers can benefit significantly.”

Mortgage Rates May Be Pressured Higher As Virus Fears Ebb

Mortgage rates were very slightly higher today after being modestly lower over the weekend, but in general, remain very close to the lowest levels in more than 3 years.  They weren't too much higher than current levels even before the coronavirus outbreak took center stage, but the virus definitely deserves credit for the extra downward momentum in recent weeks.  Given that Chinese equities markets are already indicating the financial market psyche has shifted, it may only be a matter of time before US bond markets (which dictate mortgage rates) follow suit. 

That's not to say that bonds must follow stocks.  If that were the case, we wouldn't see bond yields close to all-time lows while stocks are at all-time highs.  Rather, it's simply a comment on the fact that Chinese equities serve as a good barometer for how quickly markets are getting over their coronavirus concerns.  If we assume that bond yields (aka rates) are only as low as they are because of coronavirus, any additional recovery in Chinese equities would likely coincide with upward pressure for interest rates.

Loan Originator Perspective

Bond yields were largely unchanged Tuesday, with no meaningful economic data or new Wuhan virus drama motivating markets.  My pricing mirrored Monday's.  We're going to need some serious motivation for rates to drop significantly from here, I am playing it safe and locking loans closing within 45 days. - Ted Rood, Senior Originator

Today's Most Prevalent Rates For Top Tier Scenarios 

• 30YR FIXED - 3.375 - 3.5%

• FHA/VA -3.25%

• 15 YEAR FIXED - 3.125-3.25% 

• 5 YEAR ARMS -  3.25-3.75% depending on the lender

Ongoing Lock/Float Considerations 

• 2019 was the best year for mortgage rates since 2011.  Big, long-lasting improvements such as this one are increasingly susceptible to bounces/corrections 
  

• Fed policy and the US/China trade war have been key players (and more recently, the coronavirus outbreak).  Major updates on either front could cause a volatile reaction in rates.  
  

• The Fed and the bond market (which dictates rates) will be watching economic data closely, both at home and abroad, as well as updates on other factors like trade and viral epidemics. The stronger the data the more rates could rise, while weaker data will lead to new long-term lows.  

• Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.

BY: MATTHEW GRAHAM

The Top States Americans Moved to Last Year

Some Highlights:

• Americans are on the move, and the most recent Atlas Van Lines Migration Patterns Survey tracked the 2019 traffic flow from state-to-state.

• Idaho held on to the top spot of ‘high inbound’ states for the second time since 2017, followed by Washington State.

• New York was the country’s outbound move leader in 2019, a designation it most recently held in 2014.

The 4 Crucial Real Estate Questions

This is going to be an exciting year for real estate. The upcoming presidential election, a possible recession, and political tensions are all factors leading to confusion and hesitancy.

Will the Presidential Election Impact Real Estate?

Election years can be a tricky time for the market. During this time, both sides of the spectrum will be preaching conflicting statements about the economy – leading to confusion among potential buyers and sellers.

That’s why many people tend to sit back and wait until the election is over before making any major real estate decisions. This isn’t a new phenomenon, but with the market’s current strength and mortgage rates at historic lows, putting off buying or selling could mean less of a reward as more time goes on.

Is a Recession Around the Corner?

When a media storm of recession talk hit the news in 2019, many people affiliated it with another housing market collapse. The fears aren’t surprising, but they’re also not accurate.

Economists are now reporting that if a recession occurs, it may not be until 2021 or even 2022. On top of that, the real estate market is not a likely driving factor for an economic downturn, and the four recessions before 2008 saw little to no effect on the housing market.

What If I Buy a Home and Prices Depreciate?

It’s the greatest fear a new homeowner has. Many prospective buyers may be holding off on their search because of uncertainty tied to the upcoming presidential election and recession rumors.

The market is strong and big hitters like Freddie Mac, Fannie Mae and NAR predict home values to continue to appreciate through 2021.

Buying now is a sound investment, and buyers should take advantage of the current low mortgage rates because waiting to purchase a home could mean paying more.

Should I Take Advantage of Interest Rates Now or Wait?

Essentially this comes down to one thing: why take the chance?

Interest rates are currently at historic lows, and you are probably unaware of their increased buying power. Although the mortgage rates are projected to hold steady around 3.8%, certain factors could change this.

If you hold off on your home search and mortgage rates do rise, you will end up paying more for the same house.

There are major benefits to buying your dream home this year.

Mortgage Rates Digging Deeper Into Multi-Year Lows

BY: MATTHEW GRAHAM

Feb 3 2020, 5:39PM

In the world of interest rates, it's good to be a mortgage today.  The dominant species on that world is US Treasuries: the quintessential dollar-based loans (after all, they are loans to the US government).  Loaning dollars to the entity responsible for the dollar is about as foundational as it gets, but I digress.

Treasuries and mortgage rates tend to move in the same direction and by generally similar amounts. That's because mortgage rates are based on underlying bonds (mortgage-backed securities or "MBS") that are fairly similar to Treasuries in most of the ways investors care about.  The prices of MBS dictate where lenders can and should set their interest rates, but ultimately, it's up to the lender.  If they're flush with business and want to slow things down, they might set rates a bit higher.  The same thing can happen heading into a weekend during times of elevated volatility.

Such was the case on Friday.  Lenders had a nice improvement in MBS to work with.  It allowed them to lower rates a bit more than they actually did.  Now, as the new week begins, Treasury yields and MBS alike are indicating slightly higher rates than Friday, but because lenders played it so safe, they were instead able to offer slightly LOWER rates today.  Simply put, mortgage rates are even deeper into multi-year lows now, even though the bond market is pointing to slightly higher rates versus last Friday. 

Loan Originator Perspective

Bond yields hit a bit of a wall Monday, moving upward from Friday's multi-year lows, amid upbeat economic data and potential progress on a Wuhan virus treatment.  We may not be at the very lowest yields here, but it'd take monumentally horrible news to move rates much lower.  I am locking loans closing within 45 days for all but the most risk craving clients.  - Ted Rood, Senior Originator

Today's Most Prevalent Rates For Top Tier Scenarios 

• 30YR FIXED - 3.375-3.5%

• FHA/VA - 3.125 - 3.25%

• 15 YEAR FIXED - 3.125-3.25% 

• 5 YEAR ARMS -  3.25-3.75% depending on the lender

Ongoing Lock/Float Considerations 

• 2019 was the best year for mortgage rates since 2011.  Big, long-lasting improvements such as this one are increasingly susceptible to bounces/corrections 
  

• Fed policy and the US/China trade war have been key players (and more recently, the coronavirus outbreak).  Major updates on either front could cause a volatile reaction in rates.  
  

• The Fed and the bond market (which dictates rates) will be watching economic data closely, both at home and abroad, as well as updates on other factors like trade and viral epidemics. The stronger the data the more rates could rise, while weaker data will lead to new long-term lows.  

• Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders.  The rates generally assume little-to-no origination or discount except as noted when applicable.  Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.

Strength of the Economy Is Suprising the Experts

We’re currently in the longest economic recovery in U.S. history. That has caused some to ask experts to project when the next economic slowdown (recession) could occur. Two years ago, 67% of the economists surveyed by the Wall Street Journal (WSJ) for the Economic Forecasting Survey predicted we would have a recession no later than the end of this year (2020). The same study done just three months ago showed more than one third of the economists still saw an economic slowdown right around the corner.

The news caused concern among consumers. This is evidenced by a recent survey done by realtor.com that shows 53% of home purchasers (first-time and repeat buyers) currently in the market believe a recession will occur by the end of this year.

Wait! It seems the experts are changing their minds….

Now, in an article earlier this month, the Wall Street Journal (WSJ) revealed only 14.3% of those economists now believe we’re in danger of a recession occurring this year (see graph below):

The WSJ article strongly stated,

“The U.S. expansion, now in its 11th year, will continue through the 2020 presidential election with a healthy labor market backing it up, economists say.”

This optimism regarding the economy was repeated by others as well.

CNBC, quoting Goldman Sachs economists:

“Just months after almost everyone on Wall Street worried that a recession was just around the corner, Goldman Sachs said a downturn is unlikely over the next several years. In fact, the firm’s economists stopped just short of saying that the U.S. economy is recession-proof.”

Barron’s:

“When Barron’s gathers some of Wall Street’s best minds—as we do every January for our annual Roundtable—we expect some consensus, some disagreement…But the 10 veteran investors and economists who convened in New York on Jan. 6 at the Barron’s offices agree that there’s almost no chance of a recession this year.”

Washington Post:

“The U.S. economy is heading into 2020 at a pace of steady, sustained growth after a series of interest rate cuts and the apparent resolution of two trade-related threats mostly eliminated the risk of a recession.”

Robert A. Dye, Chief Economist at Comerica Bank:

“I expect that the U.S. economy will avoid a recession in 2020.”

Bottom Line

There probably won’t be a recession this year. That’s good news for you, whether you’re looking to buy or sell a home.

Housing Inventory Vanishing: What Is the Impact on You?

The real estate market is expected to do very well this year as mortgage rates remain at historic lows. One challenge to the housing industry is the lack of homes available for sale. Last week, move.com released a report showing that 2020 is beginning with the lowest available housing inventory in two years. The report explains:

“Last month saw the largest year-over-year decline of housing inventory in almost three years with a dramatic 12 percent decline, pushing the number of homes for sale in the U.S. to the lowest level since January 2018.”

The report also revealed that the decline in inventory stretches across all price points, as shown in the following graph:

George Ratiu, Senior Economist at realtor.com, explains how this drop in available homes for sale comes at a time when more buyers are expected to enter the market:

“The market is struggling with a large housing undersupply just as 4.8 million millennials are reaching 30-years of age in 2020, a prime age for many to purchase their first home. The significant inventory drop…is a harbinger of the continuing imbalance expected to plague this year’s markets, as the number of homes for sale are poised to reach historically low levels.”

The question is: What does this mean to 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 ready to make a competitive offer from the start, and understand that a shortage in inventory could lead to the resurgence of bidding wars. Calculate just how far you’re willing to go to secure a home, if you truly love it.

If You’re a Seller…

Realize that, in some ways, you’re in the driver’s seat. When there is a shortage of an item at the same time there is a strong demand for that item, the seller of that item is in a good position to negotiate. Whether it is price, moving date, possible repairs, or anything else, you’ll be able to demand 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.

Bottom Line

The housing market will remain strong throughout 2020. Understand what that means to you, whether you’re buying, selling, or doing both.

The #1 Reason It is Difficult to Find Your Dream Home

The headlines in real estate today all revolve around one major point: there is a shortage of homes available for sale. Price appreciation is accelerating again because there is a shortage of homes available for sale. First-time buyers are taking longer to purchase a home because there is a shortage of homes available for sale in the lower price points. Boomers are staying in their current homes longer because there is a shortage of homes available for sale to which they would move. In certain markets, affordability is becoming more challenging because there is a shortage of homes available for sale.

What’s the major reason for this lack of housing inventory?

The issue was examined in a recent article by the National Home Builders Association (NAHB). In the article, Robert Dietz, Chief Economist for NAHB, explained:

“Home building in the 2010s was a story of the Long Recovery. After the Great Recession, the number of home builders declined significantly, and housing production was unable to meet buyer demand…Years of population and household formation growth, combined with relatively reduced levels of home building, have left the market with a critical supply shortage.”

Here are the single-family home construction starts by decade for the last six decades:

Obviously, there’s a current shortage of homes for sale because not enough houses were built over the last ten years. To add to the challenge, the U.S. population expanded by more than 20 million people during the 2010s.

Below is a graph showing the number of starts per every million in population. The last decade shows that starts per population were less than half the average of the previous five decades.

There’s good news coming!

The NAHB article explains that there is light at the end of the tunnel.

How confident home builders are in the housing market is a great indicator of how much building is about to get started. The NAHB/Wells Fargo Housing Market Index (HMI) gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair,” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average,” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as “good” than “poor.”

Here are the HMI readings going back to 2008:

The 2019 confidence reading of 76 was the highest since 1999. The January 2020 index came in one point lower at 75. These readings indicate we should see an increase in new residential construction in 2020. Just last week, NAHB Chairman Greg Ugalde stated:

“Low interest rates and a healthy labor market combined with a need for additional inventory are setting the stage for further home building gains in 2020.”

The increase in housing starts has already begun. According to the January report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, single‐family housing starts were up 11.2% and attained the highest level in thirteen years.

Bottom Line

Whether you’re a first-time buyer or a seller thinking of moving up or down, 2020 could be your year with more new construction homes coming to market.

Homes Are More Affordable Today, Not Less Affordable

There’s a current narrative that owning a home today is less affordable than it has been in the past. The reason some are making this claim is because house prices have substantially increased over the last several years.

It’s not, however, just the price of a home that matters.

Homes, in most cases, are purchased with a mortgage. The current mortgage rate is a major component of the affordability equation. Mortgage rates have fallen by over a full percentage point since December 2018. Another major piece of the affordability equation is a buyer’s income. The median family income has risen by approximately 3% over the last year.

The National Association of Realtors (NAR) releases a monthly Housing Affordability Index. The latest index shows that home affordability is better today than at almost any point over the last 30 years. The index determines how affordable homes are based on the following:

“A Home Affordability Index 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 of 120 signifies that a family earning the median income has 20 percent more than the level of income needed pay the mortgage on a median-priced home, assuming a 20 percent down payment so that the monthly payment and interest will not exceed 25 percent of this level of income (qualifying income).”

The higher the index, therefore, the more affordable homes are. Here is a graph showing the index since 1990:

Obviously, affordability was better during the housing crash when distressed properties – foreclosures and short sales – sold at major discounts (2009-2015). Outside of that period, however, homes are more affordable today than any other year since 1990, except for 2016.

The report on the index also includes a section that calculates the mortgage payment on a median priced home as a percentage of the median national income. Historically, that percentage is just above 21%. Here are the percentages since June of 2018:

Again, we can see that affordability is much better today than the historical average and has been getting better over the last year and a half.

Bottom Line

Whether you’re thinking about buying your first home or moving up to the home of your dreams, don’t let the false narrative about affordability prevent you from moving forward. From an affordability standpoint, this is one of the best times to buy in the last 30 years.

January 2020 Real Estate News Update

The 2020 Real Estate Projections That May Surprise You

This will be an interesting year for residential real estate. With a presidential election taking place this fall and talk of a possible recession occurring before the end of the year, predicting what will happen in the 2020 U.S. housing market can be challenging. As a result, taking a look at the combined projections from the most trusted entities in the industry when it comes to mortgage rates, home sales, and home prices is incredibly valuable – and they may surprise you.

Mortgage Rates

Projections from the experts at the National Association of Realtors (NAR), the Mortgage Bankers Association (MBA), Fannie Mae, and Freddie Mac all forecast mortgage rates remaining stable throughout 2020:

Since rates have remained under 5% for the last decade, we may not fully realize the opportunity we have right now.

Here are the average mortgage interest rates over the last several decades:

• 1970s: 8.86%

• 1980s: 12.70%

• 1990s: 8.12%

• 2000s: 6.29%

Home Sales

Three of the four expert groups noted above also predict an increase in home sales in 2020, and the fourth sees the transaction number remaining stable:

With mortgage rates remaining near all-time lows, demand should not be a challenge. The lack of available inventory, however, may moderate the increase in sales.

Home Prices

Below are the projections from six different expert entities that look closely at home values: CoreLogic, Fannie Mae, Ivy Zelman’s “Z Report”, the National Association of Realtors (NAR), Freddie Mac, and the Mortgage Bankers Association (MBA).Each group has home values continuing to improve through 2020, with four of them seeing price appreciation increasing at a greater pace than it did in 2019.

Is a Recession Possible?

In early 2019, a large percentage of economists began predicting a recession may occur in 2020. In addition, a recent survey of potential home purchasers showed that over 50% agreed it would occur this year. The economy, however, remained strong in the fourth quarter, and that has caused many to rethink the possibility.

For example, Goldman Sachs, in their 2020 U.S. Outlook, explained:

“Markets sounded the recession alarm this year, and the average forecaster now sees a 33% chance of recession over the next year. In contrast, our new recession model suggests just a 20% probability. Despite the record age of the expansion, the usual late-cycle problems—inflationary overheating and financial imbalances—do not look threatening.”

Bottom Line

Mortgage rates are projected to remain under 4%, causing sales to increase in 2020. With growing demand and a limited supply of inventory, prices will continue to appreciate, while the threat of an impending recession seems to be softening. It looks like 2020 may be a solid year for the real estate market.

Expert Insights on the 2020 Housing Market

When closing out another year, it’s normal to wonder what’s ahead for the housing market. Though there will be future inventory issues, we expect interest rates to stay low and appreciation to continue.

Here’s what three experts are saying we’ll likely see in 2020:

Danielle Hale, Chief Economist at realtor.com

“I think the biggest surprise from the forecast is how long the market is staying in this low inventory environment, especially as Millennials are in a major home-buying phase…sellers will contend with flattening price growth and slowing activity with existing home sales down 1.8%. Nationwide you can look to flat home prices with an increase of less than 1%.”

Mike Fratantoni, Chief Economist at Mortgage Banker Association (MBA)

“Interest rates will, on average, remain lower…These lower rates will in turn support both purchase and refinance origination volume in 2020.”

Skylar Olsen, Director of Economic Research at Zillow

“If current trends hold, then slower means healthier and smaller means more affordable. Yes, we expect a slower market than we’ve become accustomed to the last few years…consumers will continue to absorb available inventory and the market will remain competitive in much of the country.”

As we can see, we’re still going to have a healthy market. It is forecasted to be a more moderate (or normal) market than the last few years, but strong enough for Americans to continue to believe in homeownership and to capitalize on the opportunities that come with low interest rates.

Bottom Line

If you’re wondering what’s happening in your market, contact a local real estate professional today.