January 2021 Real Estate Market Update

“Market data has always been a powerful tool for real estate, but 2020 marked a new high point for how data was leveraged to encourage informed decisions and to help real estate professionals reinforce their status as market experts…”
– ShowingTime
 

 
Let’s take a moment to review some of the big takeaways of 2020 before jumping into 2021. We spent a lot of time discussing why this wasn’t 2008 all over again – from appreciation to inventory to equity. We focused on home price changes during the last five recessions, and how a recession does not equal a housing crisis. Now we have the year’s numbers that have come in from the CoreLogic National Home Price Index, showing home prices rose 7.3% in 2020. Home prices actually appreciated during 4 of the last 6 recessions.
 

 
“Over the past year, strong home price growth has created a record level of home equity for homeowners. The average family with a home mortgage loan had $194,000 in home equity in the third quarter… This provides an important buffer to protect families if they experience financial difficulties and is one reason for the generational low in foreclosure rates.”
– Dr. Frank Nothaft of CoreLogic
 

 
So as of the third quarter, there was $177,000 on average in home equity. That’s grown to $194,000 in equity. CoreLogic says 38.2% of the homes are owned free and clear in this country, and 10.8% is the increase in equity – totally over a trillion dollars since the third quarter.
 
“The housing market has remained a strong pillar in an otherwise tumultuous economic year. A sharp rise in demand spurred by record low interest rates continues to bolster homeowner equity, and with many people now spending more time than ever before at home, some homeowners have tapped into their strength in the equity to fund renovations.”
– Frank Martell, CEO of CoreLogic
 

 
The most recent home price expectation survey shows us that over the next five years the average home, $300,000 home, if purchased today, stands to gain in appreciation about $50,000.
 
“The surge in workfrom-home population has re-written the playbook for many homebuying and rental decisions, from when and where to relocate to what people are looking for in their next residence.”
– David Mele, President of Homes.com
 
“Despite the best of intentions of home builders to provide more housing inventory, the big short in housing supply will continue into 2021, and likely keep house price appreciation flying high.”
– Mark Fleming, First American
 

 
From NAR to MBA, we see probably between 3 and 4% home price appreciation. So we are not seeing predictions of depreciation, but less appreciation, giving a sign to more inventory coming in the market.
 
“The bright spot for buyers is that more homes are likely to become available in the last six months of 2021. That should give folks more options to choose from and to take away some of their urgency. With a larger selection, buyers may not be forced to make a decision in mere hours and will have more time to make up their minds.”
– realtor.com
 

 
We hit almost 15% unemployment in this country, but for a very short time. We certainly don’t want to minimize those that were affected, but we shouldn’t see anywhere near the length of unemployment of the Great Recession. A lot of depth in those numbers, but with a V recovery. According to Wall Street Journal and the Fed, we show somewhere between three and five years to get back to where we started in this country before the pandemic and unemployment.
 

 
The projections through 2023 show slight decreases in unemployment as time goes on.
 

 
The Home Price Expectation Survey for the fourth quarter came out, and of the 2.7 million homeowners, 58% they said will resume their mortgage payments and stay in their home for at least a year. 24% will list their home within one year of exiting forbearance. 18% will receive a foreclosure within one year of exiting forbearance – that’s 400,086 over about a two-year time frame.
 
“Treasury rates have really been moving up since the election, but mortgage rates have kept going down… We’re going to start to see mortgage rates drift up with Treasury rates, as opposed to moving in the opposite direction.”
– Mike Fratantoni, Chief Economist, MBA
 

 
Today, if we take a 30-year fixed, $300,000 mortgage at 2.7% interest, that principal and interest payment is $1216.79. If we take the 2021 fourth quarter estimate (according to realtor.com) of appreciation and their interest rate forecast (5.7% appreciation and a 3.4% interest rate), that mortgage now is $317,100, and the principal and interest payment is $1406 – a difference of almost $200.
 
“I do believe that the American dream of home ownership is very strong. It’s very much alive from all the survey data that I’ve seen. If you’re not a homeowner, you want to be one in the future, whether that’s a short-term or a long-term goal.”
– Jessica Lautz, VP of Demographics and Behavioral Insights at NAR