July 2021 Real Estate Market Update

July 12, 2021

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July 2021 Real Estate Market Update
This month’s overall homebuyer demand rating equaled 86 on a 0-100 scale, down from 88 last month and marking the first sequential decline since November. - Ivy Zelman from the Broker Report

It looks as if we are starting to see buyer demand wane just a little bit.

Percent of Respondents Who Say It’s a Good Time To Buy – 61% in June 2020, 52% in December 2020, 47% in April 2020, and 35% in May 2021 according to the Home Purchase Sentiment Index

According to the Home Purchase Sentiment Index, just 35% of buyers say it is a good time to buy. The perception is it’s not a good time to buy. However, according to Showingtime, that doesn’t seem to be the case.

Monthly showingtime index shows 152.5 January 2020, 200 July 2020, 235.8 January 2021, 283.8 March 2021, and 248.6 May 2021

Buyer traffic is down slightly, but we are ahead of where we were over the summer of last year – a time where we packed a ton of business into a few months coming out of the lockdown. The reality is that buyers are experiencing buyer fatigue as a result of high price appreciation (14.6% this past year, according to Case-Shiller) and low inventory.

According to NAR’s months inventory of homes for sale, 1999 to 2006 was a sellers market, 2006-2013 was a buyers market, and we have since been in a sellers market, which is less than 6 months inventory on hand. A buyers market is more than 7 months inventory on hand.

However, even though the market is hyper-competitive, we are seeing a turn in the coming months. Forecasts are predicting prices to rise a bit more, interest rates are forecasted to increase, and, while things may cool off a bit, the prediction is still for a seller’s market this year.

According to the American Community Survey by Corelogic in Q1, American home equity skyrocketed with an average gain of $33,400 for an average total of $216,000 for mortgaged homes. 38.2% of all homes are owned free and clear, while there is a 19.6% increase in equity totaling over $1.9 trillion

Now, let’s take a look at equity data from CoreLogic. The average gain in equity on a mortgaged home over the past year was $33,400. The average amount of equity on a home with a mortgage is $216,000. Tremendous, tremendous equity in homes across the country. 38.2% of the homes in this country are owned free and clear.

It looks like existing inventory is starting to inch up, which is good news for a housing market parched for more supply. -Odeta Kushi, Deputy Chief Economist at First American

We're seeing another significant week-over-week gain in inventory — great news for buyers! -Haus

Supply is expected to improve, which will give buyers more options and help tamp down record-high asking prices for existing homes. - lawrence yun, chief economist at NAR

According to NAR, single family home inventory levels were at 870,000 in January and February, 900,000 in March, 990,000 in April, and 1,050,000 in May

We’re seeing more inventory coming into market as we go into the second half of the year, and it is moving very quickly.

The improvement we saw in new listings growth from May to June shows sellers are entering the market historically later in the season, which could mean we'll see home buying continue into the fall as buyers jump at new opportunities. - George Ratiu , Senior Economist at realtor.com

Price appreciation will moderate as rates and inventory rise later this year.

Mortgage rate projections by averaging together Freddie Mac, Fannie Mae, MBA, and NAR are 3.17% in Q3, 3.37% in Q4, 3.47% in Q1 of next year, and 3.57% in Q2.

It’s going to cost more in the future to borrow the money to buy a home.

Home price forecasts for 2021 average 8.9% - 10.6% from Zelman, 10.3% from MBA, 9.2% from NAR, 8% from Fannie Mae, and 6.6% from Freddie Mac

We are seeing an 8.9% average home price forecast from Ivy Zelman, NBA, NAR, Fannie Mae & Freddie Mac.

Builder Confidence Slips a Bit Because of Lumber, Labor, and Land Concerns. NAHB Housing Market Index is 81. A survey of NAHB members who rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes.

The most recent Builder Confidence Housing Market Index from the National Association of Home Builders came out showed that we are ahead of where we were pre-pandemic, but there are concerns of land, labor, and lumber. Although we are seeing increased building numbers, it will not be enough to solve to the inventory challenge.

Percentage of Mortgages in Forbearances Decreasing (according to MBA) from 8.47% in May 2020 to 5.83 in October, and now 3.93% in June.

Forbearance has dropped down to 3.93% – not an indicator of a flood of foreclosures coming to market.

Share of Mortgages in Forbearance with Less Than 10% Equity according to black knight. 4& current loan to value. 9% with 18 months deferred interest, and 13% with 18 months deferred PITI

Black Knight released a study showing the share of mortgages in forbearance with less than 10% equity, 4% based on the current loan to value. If you add in 18 months of deferred interest, that rises to 9%. If you add in 18 months of deferred principal and interest, that rises to 13%. So folks that have at least 10% equity can sell their home, put a little bit of money in their pocket, and get to the other side of the financial crisis that their family is facing.

Month-Over-Month Change in Housing Inventory according to realtor.com. The US is at 8.8%, florida at 1.3, Hawaii at negative 3.4%, Georgia at 10.2%, California at 8%, new York at 4.2%, Idaho at 28.9%, maine at 22.5% and Texas at 9.6%
According to realtor.com, there is an 8.8% growth in month-over-month housing inventory – 1.3% in Florida – with the expectation that more inventory will to come into market as we progress through the summer.
The only places where McBride told me he could envision a bubble bursting are locations where urban residents bought second homes in a panic - only to have the urban core quickly get vaccinated and normalize in 2021... We might see some price declines in the second home areas, like small towns in New England and other beach towns on the East Coast. But even there, we just might see a shift where more people decide that they like owning second homes. - the atlantic

Second-Home Market Surged in 2020 Y-O-Y Change in Mortgaged Home Purchases by Purpose according to the Zelman broker survey primary homes more than doubled year over year, second homes went from a few percentage points to 27%, and investment properties went from a few percentage points to negative 9%

As we look at data from Zelman & Associates, we see that the second home market surged in 2020. In 2019, the second home market grew by 2%. In 2020, the second home market was actually forecasted to constrict just a little bit, but it grew by 27%. People left the urban areas where the pandemic was raging. It could be an opportunity for additional inventory to be brought back to market.

Home Sales Forecast To Increase Nicely in 2021 and Do Well in 2022. total home sales were 6.5M in 2020. in 2021, fannie mae projects 6.7M, Freddie mac at 7.1M and MBA at 7M. IN 2022, 6.5M, 6.7M and 7.5M, respectively.
Overall, as we look to the second half of this year, sales are forecasted to increase nicely. Six and a half million homes sold in this country last year. The forecast for this year is close to 7 million homes. The biggest challenge this year we’ll have is we won’t reach the market potential. We cannot sell homes that we don’t have. We need more homes available for those who want to buy them. As we move into 2022, it is as good or better than what we saw last year at six and a half million homes.

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… - jp morgan insights report

With the forecasted appreciation and interest rates, it is still a good time to buy. However, sometimes the headlines can terrify, rather than clarify.

Home Equity Cashed-Out according to Freddie mac – large peak in 2006 and in surrounding years. Most recent years appear to be about a quarter of that spike

One headline you may read is about cash out refinances. In the first quarter of this year, 41 billion dollars was processed as cash out refinances. At the height of the housing crisis 320 billion dollars was cashed out as cash out refinances. Forty-one billion times four quarters, is 164 billion dollars cashed out. No where near what it was back then.

For Q1 2021, the Net Equity Extraction was $41 billion, or 0.8% of Disposable Personal Income. This is nothing like the amount of equity extraction during the housing bubble as a percent of DPI. - bill mcbride from calculated risk

This is nothing like the amount of equity extraction during the housing bubble as a percentage of disposable income. Back in the housing crisis, the amount of equity extraction – or cash out refinances – as a percentage of disposable personal income was close to 10%. For Q1, we are at 0.8%.

The reality is people have a lot of equity in their homes and they will access that equity.

Monthly Mortgage Payments Increasing Significantly according to NAR. March 2021 spike from pervious months back to April 2020 at around $1,000 to $1,190, with $1,200 in April 2021

Another headline you may read about is increasing mortgage payments. We have seen almost 20% growth in the average mortgage payment. But let’s not forget to put that into context. First, what people wanted in a home changed in the last year. Second, we saw that people are willing to pay extra for those different needs.

Housing Affordability Index 1990 to Today according to NAR where the early 2000s houses were the most affordable since these were the years distressed properties dominated the market. Today we see over half that value

Affordability may also be a headline you may hear about. Consider NAR’s housing affordability index where the higher the index, the higher number, the more affordable homes were. Years when distressed properties dominated the market, homes were very, very affordable. So when someone says that homes aren’t as affordable today as what they’ve been in the past, your first question should be, “As compared to when?”

These outsized increases have raised concerns that a home price bubble is emerging. However, conditions today are quite different than in the early 2000s, particularly in terms of credit availability. The current climb in house prices instead reflects strong demand amid tight supply, helped along by record-low interest rates. -2021 State of the Nation's Affordably Housing

Finally, the housing bubble headline. Harvard just came out with their 2021 State of Nation’s Joint Study for Housing saying that conditions today are different than in the early 2000s. Credit availability is stricter, there is increasing prices due to increasing demand, a tight supply, and record low interest rates. What we face is a supply and demand imbalance.

Forecast for Housing: Appreciation Will BeginTo Return to Historical Norms according to the home price expectation survey for Q2 – 8.66% in 2021, 5.12% in 2022, 3.7% in 2023, 3.56% in 2024, and 3.33% in 2025

As a part of the home price expectation survey, the forecast for housing for the next few years is very good. They’re forecasting this year almost 9% appreciation. A little over 5% next year. And then getting into more historical normal appreciation the years following. Historical appreciation in this country has been about 3.8%. Buying a home today can lend significant.

$93,629 is the potential growth in household wealth over the next five years based solely on increased home equity if you purchase a $350K home in January 2021

On an average priced home ($350,000), the equity growth over the next five years is just over $93,000.

Here’s how the Tallahassee market wrapped up:

July 2021 Tallahassee Residential Listings: 917 listed, 729 sold, 79.5% sold, $268,092 average sold list price, $266,172 average sold sale price, 45 days on market, 3.4% listings expired, $341,265 average unsold list price. Kelly Chavers, REALTOR

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