Normally, as we approach the end of a year I find that people are normally excited and optimistic about what the new year will bring or they are discouraged and disappointed that they didn’t achieve all that they wanted to in the current year. I think it’s safe to say that 2020 has been anything but a normal year and believe the majority are ready to move on with the hope of what 2021 will bring.

In this blog post, I take a look back at the 2020 real estate market and share some thoughts and insights into what we are likely to see in 2021. Continue reading below or watch the following video to learn more;

The real estate market started 2020 very strong. Mortgage rates were continuing to decline which caused housing affordability to reach its highest level of the past few years. Buyers were returning to the market quicker than normal after the holidays and it looked as though it would be a very active spring buying season.

Then Covid hit and everything shut down. Unemployment spiked, requests for mortgage assistance jumped, and a general feeling of uncertainty began to settle over the real estate market. After the initial shock, it was surprising to see how quickly real estate activity started picking up. It was almost as though someone hit the pause button before hitting play again 2 months later.

Rather than stumble and fall, real estate began to emerge as a bright spot within the economy. The typically busy spring season shifted to summer and the summer season shifted to fall. Rather than experience the normal season slowdown, the market has actually gained momentum the further into the year we went.

Realtor.com created the Housing Market Recovery Index to track real estate activity using February 1, 2020 as a baseline. The index, which is made up of housing demand, supply, price, and time on market has continued to improve since reaching a low point in the first week of May. After experiencing a small drop the week of the Presidential election, the index has continued its upward trend.

What About Mortgage Forbearance and Foreclosures?

As unemployment skyrocketed requests for mortgage assistance soared. The initial relief offered by the banks was 90 days of payment relief with a lump sum payment due after the 90 days. Many were quick to say this was going to lead to another housing crisis and a tsunami of foreclosures would be heading our way in 2021.

After going through the previous foreclosure crisis and working directly with the banks my belief was that the 90 day grace period was not a permanent solution but was only put in place to give the banks and government time to figure out the next step. The last thing in the world banks want is to become property owners. In addition, the amount of homeowner equity that has been gained over the past decade gave banks and homeowners options should keeping the home long term not be an option. Although the number of mortgages in active forbearance has increased slightly over the past 3 weeks, the numbers are much improved from where we were at the beginning of this crisis.

What Happened to the 2 Million Loans No Longer in Forbearance?

Not everyone that applied for a mortgage forbearance actually needed one. In some cases, it was a knee-jerk reaction to the “what if” scenario after being furloughed or temporarily laid off. Unemployment spiked so fast that lenders rolled out the offer of forbearance relatively quickly. Many homeowners, based on the uncertainty of the economy, rather than immediate financial need, applied for mortgage forbearance. 54.6% of all loans that initially entered a forbearance plan have been brought current. They either continued to make payments, have brought the loan current, or paid the loan off. The following chart provides a complete breakdown;

The 14.7% of mortgages that are still in trouble represent just over 700,000 homes. Even if all of those homes were to be sold, or foreclosed on, which they won’t, that number of homes coming to the market would not have any negative impact on home prices whatsoever based on current market conditions and definitely wouldn’t cause a housing crisis.

What About Home Prices?

What has been notable about the real estate market in 2020 is that home price appreciation has accelerated as we have moved further into the year. Rather that talk about a foreclosure crisis many are now wondering if we aren’t heading towards another housing bubble. I don’t think we are and explain why is last weeks blog post- Are Home Prices Rising Too Fast?

One trend that has emerged from the pandemic is that people’s housing needs have changed and some of those changes are likely to be permanent. While I do think the majority of students will return to the classroom I don’t think the majority of workers will return to the office full-time. It appears as though flex work will become a permanent change and there are already a number of large corporations that are making moves n that direction. As a result, housing needs are changing as there is greater demand for home offices, home gyms, and larger backyards for playing and entertaining.

While buyer demand is increasing housing supply isn’t. Many would-be sellers have been uncertain about listing their homes during the pandemic and/or selling their homes before they know they have something to move to. This high demand, low supply environment has continued to put upward pressure on home prices.

Record low mortgage rates have also caused more buyers to enter the marketplace. While the creative financing programs of the early 2000s don’t exist (thank goodness), there are a number of loan programs available that allow buyers to purchase with as little as a 3.5% to 5% down payment. With rents rapidly rising and mortgage rates expected to stay around 3% in 2021, this makes a mortgage payment more affordable than a rent payment in many cases, especially when you consider the mortgage payment is fixed for the life of the loan.

Looking Ahead to 2021

While nobody has a crystal ball, all of the major financial institutions and real estate economists are expecting the housing market to stay strong in 2021. Homebuilder confidence is at a record high and new home builders are working to bring more inventory to the market. Additionally, as the Covid vaccine is rolled out and “normal” starts to return to life it is expected more homeowners will move forward with plans to sell that were placed on hold. As more inventory comes to market the pace of appreciation will also slow which will help make sure affordability doesn’t become a serious problem.

Bottom Line

After a very uncertain year it appears as though life should start to return to normal as we head into 2021. If you placed your real estate plans on hold as a result of the pandemic and would like to discuss whether 2021 is the right time to put those plan back on track please feel free to Schedule a Call and I would be happy to help you put the plan together that’s right for you and your family.