March 2020 Newsletter

2020 Housing Market

It’s hard to start the conversation about this year’s housing market without discussing the “R” word that has been plaguing the headlines. Recession. According to the January Wall Street Journal’s Survey of Economists, 14.3% believe a recession will occur by the end of the year. In 2018, that number stood at 67%. In October 2019, that number stood at 34.2%.
 
Essentially, what we are seeing is that the projection of a recession is getting pushed back over time. In other words, in 2018, 2 out of 3 economists believed the recession would occur by the end of this year. Then in October 2019, only 1 out of 3 economists believed the recession would occur by the end of this year. We are now seeing just 14.3%.
We’re in the largest economic recovery in the United States history. Interestingly enough, one of the reasons the recession estimates are getting pushed back is the fact that the housing industry is doing as well as it is. As a matter of fact, year-over-year buyer activity has increased substantially – we are seeing more buyer traffic in this year than we did the same time last year. The housing market is very vibrant right now.

Inventory always decreases sharply in December as people take their homes off of the market for the holidays. However, based on the data I’ve collected, this was the lowest level for inventory in at least three decades. The previous low was 1.43 million in December of 1993.
Bill McBride, Calculated Risk
 
So, across the country, buyer activity is very strong, but when we go to selling traffic, we see that falls off pretty dramatically. So, the amount of people looking to purchase a house is increasing dramatically, but the amount of people ready to sell their house isn’t reaching the same levels.
 
CoreLogic is forecasting that we’re going to see 5.4% increase in home prices. We have a situation where there’s not enough inventory to satisfy the buyers, but even though prices are going up, that doesn’t mean the cost to you on a monthly basis is going up. Outside of home prices, there are other factors that can change your mortgage payment: mortgage insurance requirements, the interest rate, down payment size, credit score, and debt-to-income ratio. If interest rates are going down, even if prices are going up, you’re still going to be in good shape. We can see that they’re projecting that interest rates are going to stay under 4% for this year and next year. 

We expect mortgage rates to remain low over the next two years, averaging 3.8% in 2020 and 2021.
Freddie Mac
 
Dave Ramsey said, “When it comes to home prices for sellers, the main question is: how much money can I make on my home sale?” Sellers realized a home-price gain of $65,500 on a typical sale. This marked the highest level in the U.S. in over 13 years.
 

The infographic above sums up some great information on where the housing market is, and where it is headed this year.
 

#1 Reason to Sell Now

The success of any market is determined by supply and demand, so it’s important to look at how many buyers are out there versus the number of homes for sale.
 
The projections are rolling in and we are seeing 2 things: (1) Buyer demand is strong, and (2) Housing supply is low.

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.
move.com

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. 
realtor.com’s Chief Economist
The decreased inventory affected just about every price range, allowing for greater leverage during negotiations, which could be the #1 reason for you to sell now. Sellers are realizing a gain of $65,500 on a typical sale. This marked the highest level in the U.S. in over 13 years!

Credit Score Changes

About 110 million people could see a 20 point credit score swing in either direction, according to Fair Issac, who produces the widely used credit scores.
 
The calculation of the credit score will be taking into account more recent issues at a greater level than older issues. If you have recently fallen behind on bills, a credit score decrease is likely ahead, while those with already high credit scores may see an increase.
Experian recently found that personal loan balances over $30,000 have increased 15% in the past 5 years, however, delinquency rates have remained fairly low. In 2019, 6% of consumers were late on a payment, versus 15% in 2009.
 
FICO scores typically range from a low of 300 to a high of 850. High scores can mean lower interest rates, and more ease getting a credit card or renting an apartment. Last year, credit scores were at 706 (an all-time high), compared to 686 during the Great Recession.
 
This new calculation could reduce defaults. The model could factor in checking and savings account balances over the previous 2 years, rather than just the past few months, giving lenders more insight into how people manage their credit.
 
Be sure to keep an eye out for more information on this upcoming change.