Page not found – Real Estate https://malloryestates.com Real Estate Wed, 23 Feb 2022 17:30:33 +0000 en-US hourly 1 Matthew Gardner’s Top 10 Predictions for 2022 https://malloryestates.com/2022/02/23/matthew-gardners-top-10-predictions-for-2022 https://malloryestates.com/2022/02/23/matthew-gardners-top-10-predictions-for-2022#respond Wed, 23 Feb 2022 17:29:14 +0000 https://malloryestates.com/?p=28211 Matthew Gardner’s Top 10 Predictions for 2022 by Matthew Gardner 1. Prices will continue to rise There are some who believe that U.S. home prices will drop in the coming year given last year’s extremely rapid pace of growth, but I disagree. I don’t expect prices to fall; however, the pace of appreciation will slow […]

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Matthew Gardner’s Top 10 Predictions for 2022

by Matthew Gardner

1. Prices will continue to rise

There are some who believe that U.S. home prices will drop in the coming year given last year’s extremely rapid pace of growth, but I disagree. I don’t expect prices to fall; however, the pace of appreciation will slow significantly, rising by around 6% in 2022 as compared to 16% in 2021 (nationally). As such, agents need to be prepared to explain this new reality to their clients who have become very accustomed to prices spiraling upward. Those days are likely behind us—and it’s not a bad thing!

2. Spring will be busier than expected

The work-from-home paradigm is here to stay for the foreseeable future, and this could lead to increased buyer demand. Many companies have postponed announcing their long-term work-from-home policies due to the shifting COVID-19 variants, but I believe they will soon off er more clarity to their employees. Once this happens, it will likely lead to a new pool of home buyers who want to move to more affordable markets that are further away from their workplaces. I also expect to see more buyers who are driven by the need for a home that is better equipped for long-term remote working.

3. The rise of the suburbs

For a large number of people whose employers will allow them to work from home on an ongoing basis, remote working will not be an all-or-nothing proposition. It will be a blend of working from home and the office. I believe this will lead some buyers to look for homes in areas that are relatively proximate to their office, such as the suburbs or other ex-urban markets, but away from high-density neighborhoods.

4. New construction jumps

I anticipate the cost of building homes to come down a bit this year as inflation finally starts to taper, and this should provide additional stimulus for homebuilders to start construction of more units. Material costs spiked in 2021 with lumber prices alone adding about $36,000 to the price of a new home. This year, I’m hopeful that the supply chain bottlenecks will be fixed, which should cause prices to moderate and result in a drop in building material costs.

5. Zoning issues will be addressed

I’m optimistic that discussions around zoning policies will continue to pick up steam this year. This is because many U.S. legislators now understand that one of the main ways to deal with housing affordability is to increase the supply of land for residential construction. Despite concerns that increased density will lower home values, I believe existing homeowners will actually see their homes rise in value faster because of these policies.

6. Climate change will impact where buyers live

Now that natural disasters are increasing in frequency and climate risk data is starting to become more readily available, get ready for home buyers to require information from their agents about these risks and their associated costs. Specifically, buyers will want to know about an area’s flood and fire risks and how they might impact their insurance costs and/or their mortgage rate.

7. Urban markets will bounce back

While increased working from home can, and will, raise housing demand in areas farther away from city centers, it may not necessarily mean less demand for living in cities. In fact, some urban neighborhoods that were once only convenient to a subset of commuters may now be considered highly desirable and accessible to a larger set of potential home buyers. At the same time, this could be a problem for some distressed urban neighborhoods where proximity to employment centers may have been their best asset.

8. A resurgence in foreign investors

Foreign buyers have been sitting on the sidelines since the pandemic began, but they started to look again when the travel ban was lifted in November 2021. Recently, the rise of the Omicron variant has halted their buying activity, but if our borders remain open, I fully expect foreign buyer demand to rise significantly in 2022. Keep in mind, foreign buyers were still buying homes sight unseen even when they were unable to enter the country, and this will likely still be the case if borders are closed again.

9. First-time buyers will be an even bigger factor in 2022

Once remote working policies are clearer, we should see increased demand by first-time buyers who currently rent. In 2022, 4.8 million millennials will turn 30, which is the median age of first-time buyers in the U.S. An additional 9.4 million will turn 28 or 29 in the coming year. I believe this group is likely to contemplate buying sooner than expected if they can continue working from home in some capacity. Doing so would allow them to buy in outlying markets where homes are more affordable.

10. Forbearance will come to an end

Forbearance was a well-thought-out program to keep people in their homes during the height of the pandemic. Some predicted this would lead to a wave of foreclosures that would hurt the housing market, but this has not been the case. In fact, there are now fewer than 900,000 U.S. homeowners in forbearance, down from its May 2020 peak of almost 4.8 million, and this number will continue to shrink. That said, there will likely be a moderate increase in foreclosure activity in 2022, but most homeowners in this situation will sell in order to meet their financial obligations rather than have their home repossessed.

Originally posted on the Windermere Blog.

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Q4 2021 Western Washington Real Estate Market Update – by Matthew Gardner https://malloryestates.com/2022/02/02/q4-2021-western-washington-real-estate-market-update-by-matthew-gardner https://malloryestates.com/2022/02/02/q4-2021-western-washington-real-estate-market-update-by-matthew-gardner#respond Wed, 02 Feb 2022 15:45:47 +0000 https://malloryestates.com/?p=28207 The following analysis of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Real Estate agent.   […]

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The following analysis of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Real Estate agent.

 

REGIONAL ECONOMIC OVERVIEW

Just when we thought COVID was starting to pull back, the Omicron variant made its presence known. It is still too early to suggest that this has affected the region’s economic recovery—we won’t likely know for certain until we get more job data. I remain hopeful that this latest spike in infections will not have too much of an impact, but only time will tell. To date, the region has recovered all but 51,000 of the 297,000 jobs that were lost due to the pandemic. Some of the region’s smaller counties, including Grays Harbor, Cowlitz, Thurston, San Juan, and Clallam, have seen a full job recovery. The most recent data (November) shows the regional unemployment rate at a very respectable 3.3%, which is below the pre-pandemic low of 3.7%. The lowest unemployment rates were in King and San Juan Counties, where 2.9% of the labor force was out of work. The highest rate was in Grays Harbor County, which registered 5.1%. I still expect to see a full job recovery by this summer. However, there is a growing labor shortage holding the area back. Hopefully, this will change, but some industry sectors—especially hospitality—continue to find it hard to attract workers.

WESTERN WASHINGTON HOME SALES

❱ In the final quarter of the year, 22,161 homes sold, representing a drop of 5.2% compared to the same period in 2020 and down 18.8% from the third quarter.

❱ The reason there were lower year-over-year sales is simply because the number of homes for sale was down more than 30%. The drop between third and fourth quarters is likely due to seasonality changes in the market.

❱ Although home sales were lower in most markets, there was a significant uptick in Grays Harbor and Thurston counties. The number of homes sold dropped across the board compared to the third quarter.

❱ The ratio of pending sales (demand) to active listings (supply) showed sales outpacing listings by a factor of 5.2. The market is supply starved and unfortunately, it’s unlikely enough homes will be listed this spring to satisfy demand.

A bar graph showing the annual change in home sales for various counties in Western Washington during the fourth quarter of 2021.

WESTERN WASHINGTON HOME PRICES

A map showing the real estate market percentage changes in various counties in Western Washington during the fourth quarter of 2021.

❱ Home prices rose 15.1% compared to a year ago, with an average sale price of $711,008. This was 2.1% lower than in the third quarter of 2021.

❱ When compared to the same period a year ago, price growth was strongest in San Juan and Jefferson counties. All but two markets saw prices rise more than 10% from a year ago.

❱ Relative to the third quarter, every county except Island (-8.6%), Mason (-5.2%), Lewis (-2.9%), King (-2.1%), Cowlitz (-1.7%), and Kitsap (-0.9%) saw sale prices rise.

❱ Mortgage rates rose more than .2% between the third and fourth quarters, which may have impacted prices. Affordability constraints continue to grow, which is also likely to have played a part in slowing gains.

A bar graph showing the annual change in home sale prices for various counties in Western Washington during the fourth quarter of 2021.

DAYS ON MARKET

❱ It took an average of 23 days for homes to sell in the final quarter of 2021. This was 8 fewer days than in the same quarter of 2020, but 6 more days than in the third quarter of last year.

❱ Snohomish, Thurston, King, and Kitsap counties were the tightest markets in Western Washington, with homes taking an average of between 13 and 16 days to sell. The greatest drop in market time compared to a year ago was in San Juan County, where it took 33 fewer days for a seller to find a buyer.

❱ All counties contained in this report saw the average time on market drop from the same period a year ago. Every county except Whatcom saw market time rise compared to the third quarter.

❱ Longer days on market might suggest that things are starting to slow, but I don’t actually think this is the case. I believe buyers are being a little more selective before making offers, and many may be waiting in the hope that supply levels will improve in the spring.

A bar graph showing the average days on market for homes in various counties in Western Washington during the fourth quarter of 2021.

CONCLUSIONS

A speedometer graph indicating a seller's market in Western Washington during the fourth quarter of 2021.

This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors.

The housing market remains in a state of imbalance, but, as I look at the data, I believe the frenetic pace of sales and price appreciation may start to soften in 2022.

This will likely be due to financing costs and affordability acting as headwinds to price growth. Mortgage rates have started to rise again, and I have forecasted them to reach 3.7% by fourth quarter. This alone will slow price growth as affordability in many areas declines.

One thing that remains unknown that could have a significant impact on the market is long-term work-from-home policies. Many businesses have not yet determined their plans for remote working, but once they do, potential home buyers who have been waiting to see how frequently they have to commute to work could immediately start their search. In addition to boosting sales, this could add inventory to the market as well.

All things considered, I am moving the needle just a notch toward buyers. However, as you can see, we are still in a market that heavily favors home sellers.

ABOUT MATTHEW GARDNER

Matthew Gardner - Chief Economist for Windermere Real Estate

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

This post originally appeared on the Windermere.com Blog.

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Monday with Matthew: Is a Housing Bubble on the Horizon? https://malloryestates.com/2021/05/24/monday-with-matthew-is-a-housing-bubble-on-the-horizon https://malloryestates.com/2021/05/24/monday-with-matthew-is-a-housing-bubble-on-the-horizon#respond Mon, 24 May 2021 19:42:39 +0000 https://malloryestates.com/?p=28203 by Matthew Gardner Hello there! I’m Windermere Real Estate’s Chief Economist, Matthew Gardner, and welcome to a rather special episode of Mondays with Matthew. Why special? Well, regular viewers of my videos will know that I generally take this opportunity to give you an update on the housing related numbers that came out in the […]

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by Matthew Gardner

Hello there! I’m Windermere Real Estate’s Chief Economist, Matthew Gardner, and welcome to a rather special episode of Mondays with Matthew.

Why special? Well, regular viewers of my videos will know that I generally take this opportunity to give you an update on the housing related numbers that came out in the month, but this time we are going to go in a different direction.

A few weeks ago, I was asked by the real estate publication, Inman, to pen an op-ed that would offer a counterpoint to this one which they had just published.

Well, I think that many of you will agree that it’s a pretty direct position and – judging by the comments I read following its publication – was certainly one where readers were very firmly on one side of the fence or the other!

Those of you that know me at all will probably have already figured out my position on this. I went ahead and crafted my response and I do take a different view on the matter!

As I am sure that some of you don’t have access to Inman’s website, I thought it might be interesting to share with you the reasoning behind my belief that we are not about to enter a period of declining home values; but even if you are an Inman subscriber and did read the piece, I hope that you will still find this video worth watching as I will also be sharing some of the background data with you that was not included in the article, as well as to give some more context on the subject.

 

Home Prices Out-Pace Wages

But to start with, I must acknowledge the fact that home prices have been rising at a significantly faster pace than wages for several years now and that may well be part of the reason why some people in the industry – and some perspective home buyers – are getting concerned.

Two bar graphs side by side. On the left is the Average Weekly Wage between 2012 and 2021. Each year the bar grows, and a trendline above the bars includes text that reads: “Wages Have Risen by More than 30%. On the Right is the existing home sale price per year from 2012 to 2021. Each year the bar grows a little more and a trend line above reads “But Home Prices are up by 113%” The data sources are Windermere Economic’s analysis of N.A.R. and B.L.S.

 

As you can see here, since 2012, average weekly wages have risen by a little more than 30%, with the average annual gain of around 2.3% which is actually not that bad. Wages also rose by over 6% last year, which sounds great, but in reality, it was because of the pandemic.  You see, most of the job losses were in low-wage sectors which skewed the data upward – but I digress.

Anyway, during the same time period, you will see that even as wages rose, home prices have taken off and wage growth has simply not kept pace.

I often think about a quote from the Spanish philosopher and novelist, George Santayana, “Those who cannot remember the past are condemned to repeat it” which I think just about says it all!

 

Timeline

So, what we are going to do today is to take a look back and run through a brief timeline of events that led to the 2007 crash, and then look at where we are today and how it is totally different which leads me to speculate that there is no real reason why we should expect to see a widespread, systematic decline in home prices in the foreseeable future.

 

Line graph titled “The Case Shiller National Index” the line steadily increases a little bit between January 1991 and January 1999, but starts to increase more in the 2000’s, peaking in January 2006 and is starting to decline in January 2007 and 2008.The Source is the S&P Case Shiller.

 

This first chart shows the Case Shiller National Home Price Index level over time and we’ll be using it as a base for this part of the discussion.

If you are not familiar with Case Shiller, its what’s known as a repeat sales index – which means that it looks at the change in sale prices between when a home was purchased and when it was sold and is a great way to look at changes in home prices.

GIF of Case Shiller Index Timeline of the Housing Market from 1990 to 2008

 

Let’s start all the way back to the early 1990’s.

1992

In ’92, Congress enacted Title 13 of the Housing and Community Development Act and they did this to give low- and moderate-income borrowers better access to mortgage credit via loans supported by Fannie Mae and Freddie Mac.

1995

And in ‘95, President Clinton introduced a National Homeownership Strategy which had a very aggressive goal of raising homeownership levels from 65.1% to 67.5% by the year 2000 – that would be a rate of ownership in America that had never been seen before.

But this could only realistically happen if Fannie & Freddie significantly increased the share of mortgage funds going to lower income households. The Housing and Community Development Act required them to dedicate 30% of their portfolio to lower income borrowers – but the Clinton plan meant that they had to raise that share to 42%.

And it started out rather well with almost 2.8 million new homeowners created between 1993 and 1995 – and that was double that seen during the prior two years.

And because of the increase in demand that would come from greater loan volume, Fannie and Freddie moved to an automated underwriting process to speed up loan approvals. Interestingly, this then became an industry norm – but in going to an automated model, all they really did was to significantly relax the underwriting approval process.

1999

Now moving on to the very end of the decade, in November of 1999, Congress passed, and President Clinton signed, the Gramm-Leach-Bliley Act which, amongst other things, lifted most of the restrictions that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company that were prohibited by way of the Banking Act of 1933 – otherwise known as the Glass-Steagall Act.

Now this is important as – in essence – banks could now underwrite and sell banking, securities, and insurance products and services which included, guess what, mortgage products.

2000

In 2000, the dot-com bubble burst. Something those of us here in Seattle remember all too well – and one of the major consequences of this was that investors moved away from the equity markets and, instead, turned their attention to the real estate market.

2001

By the start of 2001, the country was heading into a recession, and even though unemployment remained close to a 30-year low, the Federal Reserve wanted to stimulate borrowing and spending, so they started to lower short-term interest rates very aggressively.

2003

As you can see, over the next 3-years the market jumped with home prices rising by 7% in 2002 and 7.5% in 2003 as more would be home buyers found easier access to mortgage credit not just from Fannie or Freddie – but all of the other institutions that could now get into the game following the passing of the Gramm Leach Bliley Act.

And because of its success, the push to expand homeownership that had started under President Clinton continued under President Bush, and he introduced a “Zero Down Payment Initiative” that allowed – under certain circumstances – removal of the 3% down payment rule for first-time home buyers using FHA-insured mortgages.

2004

Well, the Bush and Clinton administrations saw their housing goals achieved with the homeownership rate increased steadily, peaking at 69.2% of households in 2004.

Ownership rates and rapidly rising home prices were driven by one thing.

Home buyers were consuming – with relish I might add – rare mortgage products with strange-sounding names such as Alt-A, sub-prime, I-O – as in interest-only -, low-doc, no-doc, or the classic NINJA loans, NINJA being an anacronym for “no income, no job, no assets”. There were also 2–28 and 3–27 loans; liar loans; piggyback second mortgages; payment-option and even “pick-a-pay date” adjustable-rate mortgages.

What could possibly go wrong!

2005

And by 2005, sub-prime mortgages had risen from 8% of total loans made in 2003 to 20%, with about 70% of sub-prime borrowers using the hybrid 2/28 and 3/27 ARMs I just mentioned, and these were mortgages with low “teaser” rates for the first two or three years, and then they adjusted periodically.

And when you add in Alt-A mortgages, the total share of just these two mortgage products rose from 10.4% in 2003 to 39.4% in 2005.

Many people chose their financing poorly. Some clearly wanted to live beyond their means and, by mid-2005, nearly 25% of all borrowers across the country were taking out interest only home loans which gave them a lower  monthly payment, as they weren’t worried about paying down the principal because home prices were going to continue to skyrocket forever – right!!?

2006

By the end of 2006, a full 90% of all sub-prime mortgages were ARM’s and with a doubling of the sub-prime share, about $2.4 trillion of new sub-prime and non-prime mortgages were used to buy homes.

2007

Well, in 2007 over $1 trillion worth of ARM’s were about to reset, and this is what really took the market down.

Why? Well, back in July of 2004, the Fed started to raise interest rates, and with all the ARM’s starting to reset, a massive number of homeowners just couldn’t afford their new payments and they started to default in droves.

2010

The ultimate outcome was that in 2010 over 2.2% of all homes in America were foreclosed on – that almost 2.9 million homes – in just one year.

 

So what makes it different this time around?

That’s the history lesson, so let’s compare and contrast where we are today with what happened back then.

Two graphs side by side, titled together “Rate would have to rise significantly” the graph on the left is a line graph showing the 30-yearmortgage rates from 1990 to 2007. From 2000 to 2004, there’s a red arrow that highlight the decline in the number of mortgages. On the right is a bar graph that shows the annual change in U.S. Home sale prices changed in median existing home sale price from 1997-2005. There’s a steady increase from 1999 to 2004, and in 2005 there’s a share increase to 12.2% from 8.3% in 2004. The sources are Freddie Mac and NAR.

 

As we discussed earlier, the Fed started to lower interest rates following the dot-com bust and that flowed down to the mortgage market and rates also started to drop but it wasn’t just the Fed – investors did what they usually do during periods of economic uncertainty – they moved a lot of money into bonds, and this has a far more direct effect on mortgage rates.

By 2004, mortgage rates had dropped to a record low.

And as rates dropped, look what happened to prices – they started rising as buyer purchasing power rose, but that’s far from the only reason why home prices rose so significantly, but we will get to that later.

 

Two graphs side by side with the title at the bottom Rates would have to rise significantly. On the left is a line graph that shows the 30-year fixed mortgage rates from 2008 to now. There are two red arrows highlighting decreases, one from 2008 to 2021 that drops from above 6% to between 3%and 3.5%. The other red arrow highlights July 2018 to November 2020 that falls from 5% to just above 2.5%. On the right is a bar graph showing the annual change in U.S. home sale prices change in median existing home sale price from 2012-2020. Most of the graph sits below 8% except 2013 which is at 11.2% and 2020 is at 9.1%.

 

So, moving forward in time, you can see that rates dropped again as the financial crisis was taking hold and the country was entering a recession and rates dropped even more staring in 2019 as the Fed became concerned about inflation, slowing global growth, and trade wars.

And they offered further supported to the housing market at the onset of the pandemic by aggressively buy bonds which effectively lowered mortgage rates even further.

So far, you may be thinking, “well, its clearly the same as last time”, but I’m afraid that you’d be wrong.

You see, although sale prices surged in 2013 – realistically because home prices over corrected on the downside following the bubble – average annual price growth since 2013 has been slower we saw pre-bubble.

The median sale price rose by an average annual rate of 7.6% between 2000 and 2005, but between 2014 and 2020, the pace of appreciation was a full 1.5 percentage points lower.

 

Two area graphs side by side with the title underneath that says inventory of homes for sale. On the left the chart shows the inventory of homes for sale in the U.S in millions; single-family & multifamily units; seasonally adjusted. There’s a sharp increase from 2005 to 2007, then a decrease after that but the graph never goes back down to pre-2005 numbers. On the right the area graph shows the inventory of homes for sale in the US in millions from 2012 to 2021. The graph shows a slow decrease over time, with sharp changes between 2012 and 2013 and again from 20119 to 2021.

 

I am going to talk more about mortgages shortly, but it’s important to touch on another significant difference between the 2000’s and now and that’s housing supply.

As you can see here, starting in 2001, inventory levels rose and peaked just as the bubble was about to burst. Why? Well, do you remember me telling you about the surge in unique mortgage products – specifically ARM’s?

1 in 10 borrowers in ‘05 and ‘06 took out “option ARM” loans and one-third of ARMs originated between 2004 and 2006 had “teaser” rates below 4%. Therefore, we started to see people try to sell before the rate reset and this led to the growth in listings. But how does that compare to what we’ve seen over the past several years?

The number of homes for sale has been sliding since the spring of 2011 and is currently at the lowest levels since data on total US listings started to be gathered back in 1999. Ultimately, the basic economic laws of supply and demand are working today. Prices rise on scarcity of product and lower cost of financing. Both of which we see here.

 

Two bar graphs next to each other with the title of the slide reading at the bottom inventory of homes for sale. On the left is the inventory of existing homes for sale quarter average comparing Q1 2005 and Q1 2021. The bar for Q1 2005 rises to between 2 and 2.5 million. The bar for Q1 2021 sits just above 1 million. On the right is a bar graph that shows the supply of new housing in millions for US housing permit issuances. The blue bars represent single-family permit and orang represents multi-family. In 2005 the blue bar for single-family homes sits at just above 1.6 million and the orang bar for multi-family sits between .4 and .6 million. In 2020, blue bar is almost half the blue bar in 2005, sitting at just under 1 million, and the orange bar sits around the same between .4 and .6 million.

 

This shows the average number of existing homes that were for sale in the spring of 2005 – a date I chose as it was before the mortgage ARMS’s started to reset – and this spring.

Clearly a significant disparity. Now some of you may say that its lower because of the pandemic, but even if I were to use the spring of 2020 as a comparison – before the pandemic took hold – listings would still be 36% lower than in 2005.

But new demand can be met by building more new homes. Almost 1.7 million single family permits were issued in 2005 when the market was booming, but fewer than 1 million single family permits were issued last year.

The multifamily side is a little more complex as we cannot distinguish between condominiums and apartments, but I would suggest that although the number is pretty close to identical, the difference is that new multifamily permits last year were focused on the apartment world, whereas they were mainly condominiums back in 2005.

With low levels of existing and new homes for sale today, prices have risen significantly, but the difference I see is that during the pre-bubble years prices were climbing more as a function of speculation rather than real demand as there were significantly more homes available back then.

 

Line graph that shows the average home ownership tenure in the united states. A sharp increase between 2009 and 2014 shows that people are living in their homes almost double as long as they were in the early 2000’s. The source of the data is Attom Data Solutions.

 

And another reason why housing supply has been so weak is that we simply aren’t moving as often as we used to.

Speculation drove home buyers to move on average every 4 or so years in the early to mid 2000’s; but look at more recent years. Mobility has dropped and we now live in our homes for twice as long as we used to and this limits housing turnover which, with the relatively low levels of new construction we just discussed, also puts upward pricing pressure on housing as supply levels stay low.

 

Two bar graphs next to each other, the slide title is household formations. On the left is a bar graph titled Total Households in the United States in thousands. The graph shows data from 2000 to 2006 and has a red trend line showing the increase of the bars. The line has text that says 3.9 million new households formed. On the right is another bar graph showing the total households in the united stats from 2014 to 2020. The red trend lines shows that 10.5 million new households were formed in that period. Data source is the Census Bureau.

 

On the demand side of the equation, Census data shows that 3.8 million new households were formed in the United States between 2000 2006 which is a decent enough number.

But between 2014 and 2020, we added 10.5 million new households.

Now of course not all newly formed households become home buyers. I totally understand that. But we know that the long-term average homeownership rates in America is around 65% so it’s easy to extrapolate the numbers and conclude that demand for ownership housing continues to far exceed supply.

 

Two bar graphs next to each other, the title of the slide is household formations. On the left is a bar graph that shows the U.S. homeownership rate in 1995, and 2000 to 2006. 1995 is highlighted in light blue, and the bar graph represents 64.8% whereas the other bars are all above 67%, with a top number in 2014 at 69%. On the right is a bar graph that shows the US homeownership rate in 2010 and from 2014 to 2020. 2010 is highlighted with a light blue bar that shows 66.9% whereas the rest of the bars trend under 65% expect for 2020 which has a sharp increase from 2019 at 66.6%. Data source is the Census Bureau.

 

And talking about the ownership rate, some think that it is rising too fast – and that is proof that a speculative bubble is in place but look at this.

The pre-bubble period saw the ownership rate start to skyrocket, ultimately hitting an all-time high in 2004.

The rate was still elevated in 2010 and did not reach a bottom until 2016, but even though it has risen since, it remains well below the level seen in ’04.

Oh! If you are wondering about the 2020 spike, well I would take that with a pinch of salt. I say this as the Census Bureau survey in the first two quarters of last year were significantly affected by COVID-19 and I believe that the ownership rate was overestimated.

In fact, data for the first quarter of this year shows the ownership rate at 65.6% which is more realistic.

So, I think this clearly shows that although we continue to add households, we have not seen a speculatively driven spike in the ownership rate similar to the one we saw as the bubble was forming.

Well so far, we’ve looked at the supply of homes and how that has impacted the increase in housing prices; how demand continues to rise as more new households are formed; and we also covered the impact mortgage rates has had on home prices.

 

The Financing Side of the Equation

I promised you earlier that we would be returning to the financing side of the equation, because it is clear to me that it was the chief culprit behind the housing bubble.

Two graphs next to each other, the slide is titled Existing Home Prices. On the left is a line graph titled Media FICO Score for Home Buyer. There’s a significant drop in credit quality in the early to mid 2000’s. On the right is a column graph titled Mortgage Origination Volume by Risk Score. Red shows less than 620, green shows between 620 and 659, green is between 660-719, purple is between 720 and 759, and navy is 760+. Those with less than 620 were borrowing 15% of all funds used to buy homes, while prime borrowers were just below 24%. Today is a much different picture with those with less than 620 scores only make up 1.4% while those with more than 760 make up 73%.

 

This chart shows the median credit – or FICO score – for home buyers approved for a loan and you can see the significant drop in credit quality that occurred in the early to mid-200’s.

But look at where we are today. The median credit score is now 788, and when we look at the numbers in a little more detail it’s even more remarkable as by early 2007 the riskiest borrowers – those with credit ratings below 620 – were borrowing 15% of all funds used to buy homes while prime borrowers we’re just below 24%.

But, again, look where we are today. The sub-prime share of mortgage borrowing has shrunk to just 1.4% while prime borrowers are now at a very solid 73%.

The bottom line is that credit quality is remarkably high, and not at all like the pre-bubble period.

 

Two graphs next to each other, the slide is titled Months of Inventory & Offers Per Sale. On the left is a bar graph titled ARM Share of Residential Mortgage Originations. The graph shows a jump of 12% to 35% between the years 2001 and 2004, while since 2012 up until April 2021 the numbers have hovered between 3% and 7%, most recently hitting 3.1% in April 2021. On the right is a line graph titled ARM Share of Residential Mortgage Originations, showing an overall downward trend from January 2018 through March 2021, the percentage peaking in November 2018 at just above 9%. Both graphs use data for FHA, VA, and Conventional Purchase Loans.

 

Earlier we discussed that between 2001 and 2007, mortgage debt doubled and much of this growth came via risky mortgage products – many of which were adjustable-rate mortgages that offered the buyer significantly lower monthly payments.

ARM’s accounted for 35% of all mortgage borrowing in 2004 but the current share is far lower, which should quell any concerns that there might be a wave of ARM’s resetting that could impact the market.

And as you can see here, the share has dropped precipitously, but has levelled off over the past few months before rising modestly in March.

 

Two graphs next to each other, the slide is titled Credit Is Tight Even As Owners Are Not Over Leveraged. On the left is a line graph titled Housing Credit Availability Index. It shows an overall downward trend from Q1 2000 to Q1 2020, with a spike between Q1 2004 and Q1 2007. One the right is a line graph titled Loan-to-Value Ratio, which is the ratio of total debt to value. It shows data from Q1 2000 to Q2 2020. The percentage began at roughly 40% in Q1 2020, peaking at around 55% between Q4 2009 and Q4 2012 before declining steadily, coming in at just below 35% in Q2 2020.

 

This is data from the Urban Institute that I use regularly. It’s their Housing Credit Availability Index (HCAI) and it calculates the percentage of owner-occupied home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date, and I like this as their methodology also weights for the likelihood of economic downturns as well.

A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, therefore making it harder to get a loan while a higher percentage suggests that lenders are willing to tolerate defaults and are taking more risks by making it easier to get a loan.

Lenders were all good taking risks in the bubble days but are certainly looking at things very differently now.

The bottom line is that even if the current default risk doubled, it would still be well within the pre-crisis standard of 12.5% that was seen between 2001 and 2003.

And this chart shows loan to value ratios – as the bubble was forming the ratio went up as buyers were getting over leveraged but look where it is now.  Well below pre-bubble levels.

Again, tight credit and significant equity puts us in a very different place than we were in the 2000’s.

 

My Forbearance Forecast

Two graphs next to each other, the slide is titled Mortgage Forbearance. On the left is a bar graph titled Mortgages in Forbearance, representing the total residential homes in forbearance. The numbers between April 23 of 2020 and May 4 of 2021 show a peak of over 4.5 million homes in May 2020, settling to just above 2 million in May 2021. On the right is a line graph titled Share of Home Loans in Forbearance, showing data for the same time period as the graph on the left. It shows a peak of around 9% in May/early June 2020, settling to around 4% in May 2021.

 

I am sharing forbearance data for one reason and it’s because some brokers have told me that they have clients who are thinking about waiting to buy as they believe that homes in forbearance will end up in foreclosure and the growth in supply could lead home prices to drop across the board, or at the very least allow them to pick up a home on the cheap.

But as you can see, the number of homes currently in the program is down by over half from its May 2020 peak – and that equates to 2.6 million homes.

In fact, even if all the homes still in the program did actually end up in foreclosure, it would still only represent a fraction of the nearly 10 million homes that were foreclosed on due to the housing bubble bursting.

And when we look at the share of total homes in forbearance, it peaked at just over 9% but is now knocking in the door of 4% and with over 250,000 more homes about to hit the end of their forbearance period, I anticipate that the numbers will drop further later month.

So why am I not worried that a large share of these homes will be foreclosed on? This is why.

 

Two graphs next to each other, the slide is titled Single-Family Home Prices. On the left is a line graph titled Homeowner Equity, showing the dollar amount in trillions, not seasonally adjusted. Between Q1 2000 and Q1 2020, the amount rose from just over $5 trillion in Q1 2000 to $21.1 trillion in Q1 2020. One the right is a line graph titled Share of Equity Rich Properties, showing the percentage of homeowners with more than 50% equity. Between Q1 2014 and Q1 2021, the percentage rose from just below 20% in Q1 2014 to 31.9% in Q1 2021.

 

In the first quarter of this year homeowners were sat on over $21 trillion in equity – a truly massive figure.

You can see the buildup of equity as the housing bubble was forming and then it contracted through the housing crisis; however, since 2012 home equity levels have more than doubled.

My friends over at Attom Data Solutions estimate that, in the first quarter of this year, almost one in three homeowners in America had more than 50% equity in their homes – that’s almost 18 million homeowners.

And this tells me that a lot of owners in forbearance who just cannot get back on the right path still have the option to sell their homes in order to keep the equity that they have – after the bank is made whole, of course – rather than go through the foreclosure process.

And further support comes from the folks over at Core Logics who recently put out a paper suggesting that about 42% of all owners in the forbearance program bought their home before 2012 and they have, unsurprisingly, built up a sizeable chunk of equity in their homes, with median equity – even after they cover any missed payments – of almost $100,000.

Of course, it’s reasonable to say that this may all sound good, but what about owners who didn’t buy a long time ago and therefore have less equity.

Well, their data shows that 43% of owners in forbearance bought between 2013 and 2018 and they too have benefitted from prices rising and have an average of more than $87,000 in equity – again after accounting for missed payments.

And even the newest owners – those who purchased their home in 2019 or later – and they represent 15% of all homes in forbearance – well they still have an average of over $65,000 in equity.

The bottom line is that, in broad terms, a typical homeowner in forbearance could – with relative ease – cover the costs of selling a home and still have some equity left over.

Will foreclosures rise this year – yes, they will – but given all the facts I have just shared with you, I see it as being more of a trickle than a flood.

Well, there you have it.

 

In Conclusion

As far as I can see, all the data shows that we are in a very different place today than we were in the 2000’s and I find it highly unlikely that we will see a repeat of the events we saw back then.

Down payments are higher; credit quality is higher; and demographic demand for ownership housing remains robust and – quite likely will only grow as the nation’s Millennials continue to reach prime home buying. Remember that 9.6 million of them will be turning 30 over the next 2 years alone.

But, as I said in my opening comments, the pace of price growth that we’ve seen over the last year or so is clearly unsustainable and must, at some point start to slow, if only to allow incomes to catch up.

In fact, I am already seeing some tentative signs of this with the percentage growth in list prices starting to soften in several markets across the country which should start to ease the pace of sale price appreciation.

But I am afraid that I just don’t see a national downturn in home values occurring – unless banks decide to significantly loosen their underwriting criteria, but I find that very hard to believe.

Thank you for sticking with me during this rather long video. I do hope that you found it of some interest.

As always, if you have any questions or comments about today’s topic, please feel free to reach out. I would love to hear from you.

In the meantime, thank you again for watching, stay safe out there, and I look forward to visiting with you again, next month.

Bye now.

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Q1 2021 Western Washington Real Estate Market Update https://malloryestates.com/2021/04/26/q1-2021-western-washington-real-estate-market-update https://malloryestates.com/2021/04/26/q1-2021-western-washington-real-estate-market-update#respond Mon, 26 Apr 2021 17:41:57 +0000 https://malloryestates.com/?p=983 by Matthew Gardner The following analysis of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Real […]

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by Matthew Gardner

The following analysis of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Real Estate agent.

 

REGIONAL ECONOMIC OVERVIEW

In the summer and fall of 2020, Western Washington regained some of the jobs lost due to COVID-19, but employment levels in the region have been in a holding pattern ever since. As of February, the region had recovered 132,000 of the 297,000 jobs that were lost, but that still leaves the area down by 165,000 positions. Given the announcement that several counties may have to roll back to phase 2 of reopening, I would not be surprised to see businesses hold off on plans to add to their payrolls until the picture becomes clearer. Even with this “pause” in the job recovery, the region’s unemployment rate ticked down to 6.1% from the December rate of 6.4% (re-benchmarking in 2020 showed the December rate was higher than the originally reported 5.5%). The lowest rate was in King County (5.3%) and the highest rate was in Grays Harbor County, which registered at 9.2%. Despite the adjustment to the 2020 numbers, my forecast still calls for employment levels to increase as we move through the year, though the recovery will be slower in areas where COVID-19 infection rates remain elevated.

WESTERN WASHINGTON HOME SALES

❱ Sales in the first quarter were impressive, with 15,893 home sales. This is an increase of 17.5% from the same period in 2020, but 32% lower than in the final quarter of last year—a function of low levels of inventory.

❱ Listing activity continues to be well below normal levels, with total available inventory 40.7% lower than a year ago, and 35.5% lower than in the fourth quarter of 2020.

❱ Sales rose in all counties other than Jefferson, though the drop there was only one unit. There were significant increases in almost every other county, but sales growth was more muted in Cowlitz and Thurston counties. San Juan County again led the way, likely due to ongoing interest from second-home buyers.

❱ The ratio of pending sales (demand) to active listings (supply) shows how competitive the market is. Western Washington is showing pendings outpacing new listings by a factor of almost six to one. The housing market is as tight now as I have ever seen it.

A bar graph showing the annual change in home sales for various counties in Western Washington

WESTERN WASHINGTON HOME PRICES

A map showing the real estate market percentage changes in various Western Washington counties

❱ Home price growth in Western Washington continues to trend well above the long-term average, with prices 21.3% higher than a year ago. The average home sale price was $635,079.

❱ Compared to the same period a year ago, price growth was strongest in Grays Harbor and Mason counties, but all markets saw double-digit price growth compared to a year ago.

❱ Home prices were also 2.9% higher than in the final quarter of 2020, which was good to see given that 30-year mortgage rates rose .4% in the quarter.

❱ I expect to see mortgage rates continue to trend higher as we move through the year, but they will remain significantly lower than the long-term average. Any increase in rates can act as a headwind to home-price growth, but excessive demand will likely cause prices to continue to rise.

A bar graph showing the annual change in home sale prices for various counties in Western Washington

DAYS ON MARKET

❱ The market in early 2021 continued to show far more demand than supply, which pushed the average time it took to sell a home down 25 days compared to a year ago. It took 2 fewer days to sell a home than it did in the final quarter of 2020.

❱ Snohomish and Thurston counties were the tightest markets in Western Washington, with homes taking an average of only 15 days to sell. The greatest drop in market time was in San Juan County, where it took 52 fewer days to sell a home than it did a year ago.

❱ Across the region, it took an average of only 29 days to sell a home in the quarter. All counties saw market time decrease from the first quarter of 2020.

❱ Very significant demand, in concert with woefully low levels of supply, continues to make the region’s housing market very competitive. This will continue to be a frustration for buyers.

A bar graph showing the average days on market for homes in various counties in Western Washington

CONCLUSIONS

A speedometer graph indicating a seller's market in Western Washington

This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors.

Demand is very strong and, even in the face of rising mortgage rates, buyers are still out in force. With supply still lagging significantly, it staunchly remains a seller’s market. As such, I am moving the needle even further in their favor.

As I mentioned in last quarter’s Gardner Report, 2021 will likely see more homeowners make the choice to sell and move if they’re allowed to continue working remotely. On the one hand, this is good for buyers because it means more listings to choose from. However, if those sellers move away from the more expensive core markets into areas where housing is cheaper, it could lead to increased competition and affordability issues for the local buyers in those markets.

 

ABOUT MATTHEW GARDNER

 

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

Original article – https://www.windermere.com/blog/q1-2021-western-washington-real-estate-market-update

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10 Predictions for the 2021 Housing Market by Windermere’s Chief Economist https://malloryestates.com/2021/02/03/10-predictions-for-the-2021-housing-market-by-windermeres-chief-economist https://malloryestates.com/2021/02/03/10-predictions-for-the-2021-housing-market-by-windermeres-chief-economist#respond Wed, 03 Feb 2021 18:07:48 +0000 https://malloryestates.com/?p=977 by Matthew Gardner   1. Economic Growth Will Pick up – But Not Until the Summer As you are all aware, the job recovery has slowed significantly over the past few months and the December number – which saw employment levels actually drop by 140,000 jobs – was really quite appalling. But… as bad as […]

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by Matthew Gardner

 

1. Economic Growth Will Pick up – But Not Until the Summer

As you are all aware, the job recovery has slowed significantly over the past few months and the December number – which saw employment levels actually drop by 140,000 jobs – was really quite appalling.

But… as bad as the numbers were last month, I am still expecting to see solid employment gains this year.

That said, I don’t see significant improvement until the vaccine starts to be distributed widely AND a majority of us choose to take it.

And when we get to that point – likely in the second half of this year – look for a lot more jobs to be added across the country, but employment levels will rise for a reason that most people aren’t thinking about, and it’s because I believe that the public – as they feel more comfortable going out – will start
to spend again.

In fact, it’s my forecast that spending will rise very significantly later this year and that will give a much-needed boost to the economy and the job market.

You see, we haven’t been spending our hard-earned dollars at normal levels for almost a year now and, quite frankly, the cash that we have been hoarding since the pandemic started is starting to burn a hole in our pockets.

So, my number 1 prediction is that we will see significant economic growth– and job gains – this year, but that most of the growth will come in the second half of 2021

 

2. The Move to the Suburbs is Real – But Don’t Get Carried Away! Looking now at the housing market, there’s been a lot of talk about a COVID-19 induced flight away from cities and into the countryside.

Well, the numbers don’t lie – there have certainly been more interest from buyers looking at markets outside of our core metros and this – obviously – is a function of the work-from-home phenomenon that I believe is not a flash in the pan, rather it is real and will be in place for a long time, if not forever.

But there is a bit of a wrinkle in this theory. In as much as we are certainly seeing suburban flight from markets like New York and San Francisco, the same can’t be said for much of the rest of the country.

In fact, according to a study recently published by Lending Tree, the percentage of owners who moved out of the top 50 largest metro areas in the country in 2020 was just 2.2% – now this is up from 1.9% in 2019 – but it’s hardly the tsunami that many had anticipated. And it’s also worth mentioning that some of the markets within Windermere’s footprint actually saw a net increase of migrating homeowners and not a drop. Examples of this include Denver which saw the number of households moving in up by 3.6% in 2020; Portland was up by 3.4%; Seattle by 3.3%; and Sacramento saw an in-migration rise by 2.9%. Although some households will move because work from home allows them to relocate to cheaper markets, it doesn’t mean that we are all headed out to the wild blue yonder.

In fact, I believe that – even though a good number of households will move – many will stay within striking distance of their workplaces, and I say this because I expect the work from home concept to be one where we work part-time from our homes, and part-time at our offices.

My number 2 forecast is that although people will move away from some of our core cities this year, many will still stay in the same region as work from home will not be a full-time situation for a majority of workers.

3. Not all Apartment Markets are Created Equal

The apartment market has been hit very hard by COVID-19 with rising vacancy rates putting significant downward pressure on rents in many large markets such as Seattle, San Francisco, Boston, and New York but guess what? We are actually seeing rents still rising in many smaller cities and these include Boise, Fresno, and Tucson, Arizona.

And this move away from expensive apartment markets is occurring for several reasons not least of which is – again – work from home, but it’s also due to an increasing number of renters turning into home buyers, and it’s also because the rent premium for being “close to the action” in major cities has faded and, because of this, I see previously overlooked suburbs and
small metros benefitting from growing demand.

2021 will be a tough year for many landlords in larger cities not just for the reasons I have already mentioned, but also because we are bringing on over 400,000 new apartment units across the country this year and many new developments are in these larger cities.

Number three forecast – Apartment owners in pricy markets will continue to suffer in 2021, but smaller markets will perform rather well and – after many years of being overlooked – I am also forecasting those apartment developers will start to turn their attention toward suburban markets and away from many of these larger cities. We haven’t seen that in over a decade.

4. The Luxury Housing Market Will Continue to Perform Very Well

One of the sectors that really performed far better than anyone – including me – had anticipated in 2020 was the luxury housing market, and I expect this sector to be very robust again this year and the reason for this, primarily, will be interest rates. Jumbo mortgage rates, which saw a spike at the start of the pandemic, have since dropped significantly and this is benefitting buyers of luxury housing.

Buyers of luxury housing will be very active this year and I see many focusing on some secondary markets – for value reasons – but I still expect that the classic luxury markets, like the Hamptons for example, will also do very well.

Other markets where the luxury sector will outperform are Miami – but this will be mainly due to tax changes in New York City driving owners to relocate – and I’m also watching Southern California and predict that luxury homes down there will also outperform this year.

One more thing I would mention is that I also expect that, as the country starts to reopen post-COVID, we will see a rebound in foreign buyers as well so keep an eye on that too.

Forecast number 4 – the luxury market will be more robust in 2021 than many had anticipated.

5. Cities will Start to Pay More Attention to Zoning (at Long Last!)

Many of you will be more than aware of my ongoing concerns regarding housing affordability. Now, we have seen some cities like Minneapolis, and even some States – and here I’m talking about Oregon – start implementing significant zoning changes to allow for more new home development in their markets which is impressive, but it certainly isn’t happening everywhere.

However, I believe that this year we will – at long last – start to see more attention from legislators when it comes to increasing the supply of land for residential construction and many will do this by adjusting current zoning policies to allow more land on which to build.

So why this new focus? Well, their attention will be driven by worries that high housing costs in their own markets may lead businesses to start to look at cheaper areas and – possibly – move away from their current locations, and other businesses that are thinking about expanding into new markets – well, they will be increasingly thoughtful about how housing costs in expansion markets will impact how much they have to pay their new employees.

You see, we know that almost every jurisdiction across the country is suffering from significant shortfalls in revenue and, because of this, legislators will have to start focusing on attracting new businesses – and retaining as many businesses as possible – in order to help replenish their coffers.

Forecast Number 5 – Although it won’t happen overnight, I am hopeful that discussions around zoning changes will start to pick up some steam this year.

6. Adaptive Reuse Will Gain More Traction

Over the past several months, many of you have asked me whether we will see office buildings converted to residential uses as there will be fewer workers occupying offices. Well, I am sticking to my belief that the cost of conversion and the layout of office buildings (primarily due to core depths, lack of plumbing penetration, and the like) just don’t lend themselves to conversion to residential uses – well, that is unless you buy them at bankruptcy prices!

That said, I am expecting to see other building types that may be better suited for conversion into either single residential use or a mix of uses, start to become attractive to developers.

And what are these other product types, you ask? Well, likely unsurprising to you is that I am looking at hotels – which are going to continue to be hard hit for, in my opinion, years… and retail malls – both strip as well as regional.

You see, we are already seeing more hotels – mainly inns and motels – be listed for sale as they are just not providing adequate cash flow and I expect
that some, but not all, may become ripe for conversion into residential uses.

As far as malls are concerned, look for more interest in the conversion of regional malls into mixed-use projects, but strip malls may get rezoned into single residential uses.

Number 6 – developers will start to pay more attention to the reuse of existing buildings in addition to ground-up construction.

 

7. What’s important in a post-COVID-19 home?

The pandemic has started to change what we are looking for in a home and it’s actually very interesting to see what is now becoming important to buyers. We know that work from home is real, but I see households moving not just because housing is relatively cheap further out, but many will look at their own homes – even if they are on the fence about moving – and realize that it’s just not set up for working remotely on a semi-permanent, or permanent, basis.

How many people do you know who have spent the past several months working from their dining room tables? I’m one!

But I also expect to see sellers who may not have an office in their homes, create dedicated spaces for an office set up to attract buyers or, where they just can’t do that, they will, at a minimum, create a dedicated Zoom space before listing their homes for sale!

I am also forecasting that you will also see new construction housing reflect these changes with builders better aligning their product with new consumer preferences and that demand for new homes will rise in 2021 as builders address these new requirements from buyers.

People want more space today because they are using their homes more and I already see builders addressing this with the average new home size rising last year following several years where new homes were actually getting smaller.

Also, when it comes to new construction, open floor plans — once a must — well they will be replaced too thanks to COVID-19 and buyers wanting more room separation.

And finally, I expect buyers who are looking to move a lot further out to become far more interested in markets that have high-speed internet access. Many of us take it for granted, but buyers will start to list this as a requirement, rather than an option – again possibly limiting moves too far out into the country.

Forecast Number 7 – Home preferences are changing – builders are already adapting, and owners of existing homes will have to do what they can to meet these new requirements.

 

8. Worries About Forbearance are Overblown.

Since last spring, a question that I have fielded probably more than any other, has revolved around the topic of forbearance.

The GSE’s have extended the forbearance program to the end of March so some of the pressure has been removed, but there are a lot of people who fear that – when forbearance expires – we will see a veritable tsunami of foreclosed homes come online and this massive increase in supply will lead to all homes seeing values drop.

Well, it won’t happen, and here’s why.

First off, the number of homes in forbearance is already down by 43% from its May peak. Even though it is true that the pace of the drop in the number of homes in the program has slowed, the trend is still headed in the right direction.

Yes, there are still 2.7 million homes in the program, but I believe that, as owners start to get back to work again, many will be able to either refinance their loans or work with their lenders to extend the term of their mortgages in order to make up missed payments and most will not end up in foreclosure.

I would also add many owners in the program – if they just can’t get back on track – will sell in order to keep the equity that they have built over the last few years and, in most areas, there will be enough buyer demand and they will be able to get out from under forbearance by selling and paying off the mortgage and missed payments that way.

Of course, we will see foreclosures rise this year, but I just don’t see the majority of owners in forbearance be forced into foreclosure and that will limit the downside risk to the housing market.

That said, I am a little more worried by condominium owners who are in forbearance as the supply of these homes is already on the rise and this is causing prices to soften relative to single-family homes.

This is not a phenomenon spread broadly across the country, but many markets are seeing condo price growth slow and some – here I am looking specifically at Queens in New York, Suffolk County in Boston, and in San Francisco County – are seeing real price declines and I do expect to see a greater share of condos end up in foreclosure, but a far smaller share of single-family housing will suffer the same fate.

And I must add that not all market areas are created equal. Today, total delinquency rates are very high in states like Mississippi, Louisiana, New York & Oklahoma, but here in the western US they are significantly lower.

Interestingly, when I looked at Windermere’s footprint, I am delighted to report that the States with the lowest rate of non-performing mortgage include Idaho, here in Washington State, Colorado, Oregon, and Montana.

So forecast number 8 – I do not anticipate a wave of foreclosures following the end of forbearance, and that the foreclosures that do occur will have a limited impact on the broader ownership housing market.

 

9. Mortgage Rates Will Rise – But Don’t Worry

Rates for 30-year conforming mortgages have broken below all-time lows 16 times since the pandemic started. Really remarkable with the average 30-year rate at the time of recording this video standing at 2.65% and rates down by over a full percentage point over the past year and that, naturally, has allowed prices to continue rising at above-average rates, but going forward I just don’t see them dropping much more, and I believe that we have, at least for now, reached a floor when it comes to rates.

Without getting too academic, the reason I say this is that mortgage rates track the interest rate on 10-year treasuries – or at least they should – but that relationship broke back in February – because of the pandemic. However, treasury yields have started to rise again, and that relationship is now back in line which tells me that rates are unlikely to drop much further – all things being equal.

Prediction number 9 – mortgage rates are unlikely to drop much more, but don’t anticipate them rising too much with this year averaging around 3.1%. Still very competitive.

 

10. US Home Sales Will Rise Significantly, but Price Growth Will Moderate

Finally, I just have to talk about home sales and prices even if I did cover this in my last forecast. Given all the factors I have already talked already, we will see more demand from buyers this year, and I also expect to see listings actually increase as people look to relocate, and this will lead sales in 2021 to rise to a level we haven’t seen since 2006!

And big players in the housing market as far as buyers are concerned will be renters turning into home buyers and I would add that we could see first-time buyers make up an even bigger share of the market if the Biden Administrations goal to introduce a new first-time buyer tax credit gets enacted – but that is certainly not a given.

Overall, existing home sales will rise by 7.7% in 2021 to around 6.2 million units.

As for prices, well I see them increasing again this year but, as I just mentioned, mortgage rates will start to move modestly higher and this will be a bit of a headwind to price growth, and affordability constraints will also start to slow appreciation in expensive housing markets. This year I am looking for average prices to rise by a relatively modest 4.1%.

My final forecast – home sales will rise significantly this year, but price growth will moderate.

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Think This Is a Housing Crisis? Think Again. https://malloryestates.com/2020/04/17/think-this-is-a-housing-crisis-think-again https://malloryestates.com/2020/04/17/think-this-is-a-housing-crisis-think-again#respond Fri, 17 Apr 2020 15:10:19 +0000 https://malloryestates.com/?p=973 With all of the unanswered questions caused by COVID-19 and the economic slowdown we’re experiencing across the country today, many are asking if the housing market is in trouble. For those who remember 2008, it’s logical to ask that question. Many of us experienced financial hardships, lost homes, and were out of work during the […]

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With all of the unanswered questions caused by COVID-19 and the economic slowdown we’re experiencing across the country today, many are asking if the housing market is in trouble. For those who remember 2008, it’s logical to ask that question.

Many of us experienced financial hardships, lost homes, and were out of work during the Great Recession – the recession that started with a housing and mortgage crisis. Today, we face a very different challenge: an external health crisis that has caused a pause in much of the economy and a major shutdown of many parts of the country.

Let’s look at five things we know about today’s housing market that were different in 2008.

1. Appreciation

There’s a big difference between the 6 years prior to the housing crash and the most recent 6-year period of time. Leading up to the crash, we had much higher appreciation in this country than we see today. In fact, the highest level of appreciation most recently is below the lowest level we saw leading up to the crash. Prices have been rising lately, but not at the rate they were climbing back when we had runaway appreciation.

2. Mortgage Credit

The Mortgage Credit Availability Index is a monthly measure by the Mortgage Bankers Association that gauges the level of difficulty to secure a loan. The higher the index, the easier it is to get a loan; the lower the index, the harder. Today we’re nowhere near the levels seen before the housing crash when it was very easy to get approved for a mortgage. After the crash, however, lending standards tightened and have remained that way leading up to today.

3. Number of Homes for Sale

One of the causes of the housing crash in 2008 was an oversupply of homes for sale. Today we see a much different picture. We don’t have enough homes on the market for the number of people who want to buy them. Across the country, we have less than 6 months of inventory, an undersupply of homes available for interested buyers.

4. Use of Home Equity

In 2008, consumers were harvesting equity from their homes (through cash-out refinances) and using it to finance their lifestyles. Today, consumers are treating the equity in their homes much more cautiously.

5. Home Equity Today

Today, 53.8% of homes across the country have at least 50% equity. In 2008, homeowners walked away when they owed more than what their homes were worth. With the equity homeowners have now, they’re much less likely to walk away from their homes.

Bottom Line

The COVID-19 crisis is causing different challenges across the country than the ones we faced in 2008. Back then, we had a housing crisis; today, we face a health crisis. What we know now is that housing is in a much stronger position today than it was in 2008. It is no longer the center of the economic slowdown. Rather, it could be just what helps pull us out of the downturn.

Article by KeepingCurrentMatter.com

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.

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COVID-19 REMAINS A WILDCARD FOR THE SEATTLE REAL ESTATE MARKET https://malloryestates.com/2020/03/19/covid-19-remains-a-wildcard-for-the-seattle-real-estate-market https://malloryestates.com/2020/03/19/covid-19-remains-a-wildcard-for-the-seattle-real-estate-market#respond Thu, 19 Mar 2020 22:42:12 +0000 https://malloryestates.com/?p=969 MARCH 13, 2020 [THE STATE OF] REAL ESTATE This is the time of year when our real estate market starts to heat up, but many are  questioning what impact the coronavirus outbreak may have. For now, real estate industry experts say coronavirus remains a wild card. The lending and refinancing side of real estate has […]

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This is the time of year when our real estate market starts to heat up, but many are  questioning what impact the coronavirus outbreak may have.

For now, real estate industry experts say coronavirus remains a wild card. The lending and refinancing side of real estate has picked up tremendously, thanks in part to the Federal Reserve’s emergency interest rate cut at the beginning of the month, and many lenders nationwide are working overtime to process applications. The current low interest rates are certainly attractive to buyers.

While it’s too early to tell what the long-term impacts may be, it hasn’t seemed to slow down Seattle-area buyers and sellers. Available inventory remains low, demand is high and the current seller’s market is still producing multiple offers on many listings.

“I think it’s too early to tell right now,” Windermere broker Cassie Walker Johnson tells KOMO News. “There’s certainly a lot of talk.”

First-time home buyer Kristen Vogel has been house hunting in Seattle for only three weeks and told KOMO News her search “pretty much tracks the coronavirus.” At first, she considered putting her search on hold.

“You know, we’ve been instructed to avoid putting ourselves in places where we could get sick and walking through homes of people I don’t know and being around people was really the only hesitancy,” she explained.

Her plan now is to do what she can to prevent infection and not let panic stop her search.

Amid the unknowns, real estate-related businesses are assessing sales, listings and showings to implement prudent planning over panic and fear. For sellers preparing to put their homes on the market, it’s important to make sure the space is in the absolute best condition possible and that properties are priced competitively.

For buyers, despite the historically low interest rates, it’s recommended to avoid maxing out your mortgage budget.

“Have some savings. And, don’t use the highest amount of mortgage you’ve been qualified for. It’s being smart all of the time, regardless of what external factors are going on,” said Walker Johnson.

More from Windermere on the coronavirus (COVID-19):

Matthew Gardner speaks to KIRO Radio about the potential impacts on real estate and our local economy. READ MORE AND LISTEN TO THE INTERVIEW HERE

A version of this article was first published on komonews.com

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Amid coronavirus concerns, Seattle homebuying frenzy continues https://malloryestates.com/2020/03/06/amid-coronavirus-concerns-seattle-homebuying-frenzy-continues https://malloryestates.com/2020/03/06/amid-coronavirus-concerns-seattle-homebuying-frenzy-continues#respond Fri, 06 Mar 2020 16:33:19 +0000 https://malloryestates.com/?p=963   The condo a quarter-mile away from the Life Care Center of Kirkland — the long-term care facility at the epicenter of the U.S. novel coronavirus outbreak — hit the market at $365,000 last week, one day after the first resident of the nearby facility died of the flulike illness. By Monday, roughly 34 groups […]

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The condo a quarter-mile away from the Life Care Center of Kirkland — the long-term care facility at the epicenter of the U.S. novel coronavirus outbreak — hit the market at $365,000 last week, one day after the first resident of the nearby facility died of the flulike illness.

By Monday, roughly 34 groups of home shoppers and looky-loos had toured the property, not one expressing concern about the viral disease, according to the listing agent.

The condo sold five days after it was listed, with the winning offer of nearly $400,000 waiving all contingencies.

Even as concern over the rapid spread of the novel coronavirus mounts, the most recent data on area home sales from the Northwest Multiple Listing Service (NWMLS) shows the market for Seattle-area residential realty remains hot.

It’s too early to tell just what the impact of the novel coronavirus will be in the coming weeks, but all else being equal, low inventory and price increases are expected to continue into the spring, brokers said.

An emergency interest-rate cut Tuesday — the first time the Federal Reserve has used emergency powers since the depths of the 2008 financial crisis — could add further fuel to property markets around Puget Sound, brokers said.

“Our agents aren’t yet seeing any impact on open house attendance due to the COVID-19 outbreak,” said Mike Grady, president and COO of Coldwell Banker Bain in Bellevue, in a statement. “We continue to be bullish on the Puget Sound economy and real estate market.”

In February, median home prices in King County spiked 7% over the previous month, to $675,000, representing a 3% gain year-over-year. There were also more new listings in King County, 2,271, than any time since September.

Meanwhile, inventory plunged even lower than January’s already-tight market, by one metric. There were 40% fewer homes on the market in King County in February than there were in January, the NWMLS data shows.

But months of inventory — a measure of how long it would take to sell all the homes currently on the market — stayed constant at 1.2 between January and February, indicating that homes weren’t moving quite at January’s greased-lightning pace.

Prices rose more slowly in Seattle than anywhere else in King County, to $730,500, a less-than-1% bump over this time last year. Elsewhere in the county, from the tonier neighborhoods of the Eastside to less-expensive parts of Southwest King, price growth saw an increase of roughly 10% compared to last year.

Elsewhere in Puget Sound, home prices continued a meteoric rise, especially in Kitsap County, where they rose by an eyeball-popping 18% year-over-year. Growth in Pierce and Snohomish counties hovered around 10% compared to last year, with median prices hitting $395,000 and $515,000, respectively.

Click here to read full article found on Seattletimes.com

 

By

Seattle Times business reporter

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LOCAL MARKET UPDATE – FEBRUARY 2020 https://malloryestates.com/2020/02/20/local-market-update-february-2020 https://malloryestates.com/2020/02/20/local-market-update-february-2020#respond Thu, 20 Feb 2020 23:07:59 +0000 https://malloryestates.com/?p=957 New jobs and low interest rates continue to fuel the housing market boom. While January is traditionally a slower month for activity, the new year saw steady buyer demand. With the number of sales exceeding new listings, all indicators point to a strong spring market. EASTSIDE The tech industry on the Eastside continues to grow […]

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New jobs and low interest rates continue to fuel the housing market boom. While January is traditionally a slower month for activity, the new year saw steady buyer demand. With the number of sales exceeding new listings, all indicators point to a strong spring market.

EASTSIDE

The tech industry on the Eastside continues to grow rapidly. Microsoft and Alibaba both have significant expansions underway. Amazon expects to increase its workforce in Bellevue to 15,000 in the next few years, a sevenfold increase from today. As the economy continues to grow, inventory keeps being squeezed. There were 47% fewer single-family homes on the market in January than the year prior. Home prices have been stabilizing for some time, fluctuating slightly from month to month. In January the median home price slipped 2% over a year ago to $892,000.

KING COUNTY

The number of single-family homes on the market in King County was down nearly 44% from a year ago. That lack of inventory has resulted in more multiple offers and the return of review dates, where sellers identify a date to review all offers. Strong competition for a small supply of homes boosted the median home price 3% over the prior year to $630,525.

 

SEATTLE

The jobs outlook in Seattle for 2020 remains robust, and demand for homes continues to outstrip supply. Traffic at open houses in January reflected that demand, with one central Seattle homes priced in the $1.2 million range drawing more than 300 visitors. Home prices in the city have been relatively stable for the past 12 months. That remained the case in January where the median price for a single-family home inched up 1% over last year to $719,950.

 

SNOHOMISH COUNTY

With 35% less inventory than last January, competition among buyers in Snohomish County is fierce and multiple offers have become the norm. The median price of a single-family home soared 12% over a year ago to $509,950. Home prices have been playing catch up, increasing at a much faster pace over the past year than King County. While the prices gap has closed, the median price here is still nearly 20% less than King County.

 

To view article on Windermere Eastside click here.

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LOCAL MARKET UPDATE – JANUARY 2020 https://malloryestates.com/2020/01/20/local-market-update-january-2020 https://malloryestates.com/2020/01/20/local-market-update-january-2020#respond Mon, 20 Jan 2020 19:31:54 +0000 https://malloryestates.com/?p=951 EASTSIDE Homes sold briskly on the Eastside in December in all categories, including the luxury market. The number of listings were down nearly 50% from a year ago and the area had under a month of available inventory. That lack of inventory helped bump the median price of a single-family home up 4% from a […]

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EASTSIDE

Homes sold briskly on the Eastside in December in all categories, including the luxury market. The number of listings were down nearly 50% from a year ago and the area had under a month of available inventory. That lack of inventory helped bump the median price of a single-family home up 4% from a year ago to $949,000, which is a $49,000 increase from November.  New large scale developments and a strong economic forecast indicate that the housing market will remain healthy.

KING COUNTY

King County continues to be a seller’s market. Inventory in December was down nearly 40% compared to a year ago and ended the month with below one month supply. The median price of a single-family home rose 6% over the prior year to $675,000, up slightly from November. More affordable areas saw much higher increases. Southeast King County – which includes Auburn, Kent and Renton – saw home prices jump 16% over the previous year.

SEATTLE

Numbers tell the story in Seattle. Inventory was down 25%, while the number of closed sales increased 19%. Strong demand here has kept the housing market solid, with prices fluctuating slightly month-to-month for much of 2019. The median price of a single-family home sold in December increased 2% from a year ago to $727,000. That was slightly down from $735,000 in November.

 

 

SNOHOMISH COUNTY

While the median home price in Snohomish County is less than that in King County, the gap continues to close. Buyers willing to trade a longer commute for a lower mortgage have kept demand and prices strong. Inventory here was off 36% in December as compared to a year ago. The median price of a single-family home rose 9% over a year ago to $510,000, an increase of $15,000 from November.

Original article, click here.

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