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SHOW NOTES FOR EPISODE 502: 2021 HOUSING MARKET PROJECTIONS AND OPPORTUNITIES
Mortgage interest rates are going up and down like a roller coaster. Housing inventory is at historic lows. Unemployment, forbearances and mortgage delinquencies have set the stage for major economic impact. Economists and real estate gurus are shouting “Crash!” while politicians and others are saying: “Don’t worry. Everything will be OK!” What are we, as real estate investors, supposed to do? In today’s podcast, Bill shares some of the data that is causing concern and offers his take on how he plans to respond.
Tip of the Week
Four Reports You Should Always Have Ready as the Owner of Multifamily Properties
- Updated Rent Rolls
- Income and Expenses Reports for the last 12 months (T-12’s)
- Annual Operating Budgets
- Annual Income Forecasts
Introduction
There’s a lot of buzz out there on the economy, interest rates and a pending recession. I have been reading, researching, watching YouTube, and talking with industry influencers to help determine my next moves into 2021-2022.
- There seems to be an overall national optimism for the real estate market in general but local markets will react differently
- However, there are others who say, based on housing inventory stats, that in Q4 there could be a major downturn
Inventory Stats
Inventory (the number of homes available for purchase) is going down
- In December 2020, inventory was at 1,070,000 active properties listed on the market. This is down 16.4% from November 2020 (1,280,000). Compared with December of 2019 (1,390,000), inventory levels were down a marked 23.0%. This is a record-setting low since 1999, when NAR started tracking the data.
What is a normal market? National Assoc of Realtors – A 6 month supply of homes is associated with “moderate supply” – and that number is 3 million homes
- Today (March 2021) – 1.9 months
- We need 2 million hours
What there are not more homes available?
- Many factors:
- Uncertain economic times
- People holding off on selling to see what happens in economy
- “Work From Home” phenomenon – more people are working from home and their home has become their office
- Millennials are buying more homes
Forbearance
- 600,000 people coming to end of their forbearance period 3/21
- 400,000 people coming to end in 4/21
Delinquencies
- 3,557,000 people delinquent on their mortgages (according to Black Knight)
- If half can’t pay, that’s 1,750.000
- 2,200,000 seriously delinquent
- How many of these people will be listing their homes or going into foreclosure?
Mortgage Interest Rates
- The majority of closely watched refinance interest rates have trended upward as of March 17, 2021
- But on the same day, you get this headline: “Today’s mortgage rates begin move back toward historical lows | March 17, 2021”
- What that suggests is much volatility
- National Association of Realtors predicts rate will go from 3.2% (for a 30 year loan) to 3.4% at year-end
Predictions
- FORBEARANCE/DELINQUENCIES will INCREASE inventory
- INTEREST RATES will stay low and you will see lots of refinancing and this will DECREASE inventory
- WORK FROM HOME will DECREASE inventory
- UNEMPLOYMENT (way over 10 million people) will continue and will INCREASE inventory
- RENTERS will increase INCREASE inventory
- 8-10,000,000 facing evictions
- NEW SUPPLY (800-900,000 new housing units expected in 2021) will INCREASE inventory
Predictions Summary
- INVENTORY – 2 million INCREASE
- HOME PRICES DROP – Q4 2021 or 2022
- RENT PRICES – Stay Flat 2021 but will INCREASE in 2022
- EVERYTHING CAN CHANGE – if Biden throws money in different places – INFLATION COMING?
Current Housing Trend Highlkights
- The average sale-to-list price ratio shot up to 100.1% nationwide, marking the first time on record the typical home has sold above its list price.
- Key housing market takeaways for 400+ U.S. metro areas during the 4-week period ending March 7:
- The median home-sale price increased 17% year over year to $328,350, an all-time high. This is the largest increase on record in this data set, which goes back through 2016.
- Asking prices of newly listed homes hit a new all-time high of $349,975, up 10% from the same time a year ago.
- Pending home sales were up 19% year over year and up 3% from the four-week period ending February 7. In the two weeks since pending sales dipped during the winter storms over the 7-day period ending February 21, the weekly number of pending sales is up 17%.
- New listings of homes for sale were down 17% from a year earlier.
- Active listings (the number of homes listed for sale at any point during the period) fell 41% from 2020 to a new all-time low. This is the largest decrease on record in this data, which goes back through 2016.
- 56% of homes that went under contract had an accepted offer within the first two weeks on the market, well above the 45% rate during the same period a year ago. This is another new all-time high for this measure since at least 2012 (as far back as Redfin’s data for this measure goes). During the 7-day period ending March 7, 59% of homes sold in two weeks or less.
- 44% of homes that went under contract had an accepted offer within one week of hitting the market, up from 32% during the same period a year earlier. This is also an all-time high for this measure. During the 7-day period ending March 7, 48% sold in one week or less.
- The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, increased to 99.8%—1.7 percentage points higher than a year earlier and an all-time high. During the 7-day period ending March 7, the ratio shot up to 100.1%, the first time on record since this data series began in 2016 that the average home has sold for above its list price nationwide.
- For the 7-day period ending March 7, the seasonally adjusted Redfin Homebuyer Demand Index—a measure of requests for home tours and other services from Redfin agents—was up 55% from the same period a year ago.
- Mortgage purchase applications increased 7% week over week (seasonally adjusted) and were up 2% from a year earlier (unadjusted) during the week ending March 5. For the week ending March 11, 30-year mortgage rates increased to 3.05%, the highest level since July.
National vs. Local Markets
- There are definitely national market stats and local market stats
- I have been highlighting national
- But are their key market opportunities on a local market basis?
Local Market Opportunities
Some of the markets that have shown significant potential projected sales and price growth are below:
Where Are People Moving?
U-HAUL (2 million moves 2020)
- Tennessee
- Texas
- Florida
- Ohio
- Arizona
- Colorado
- Missouri
- Nevada
- North Carolina
- Georgia
NORTH AMERICAN VAN LINES
INBOUND
- Idaho
- Arizona
- South Carolina
- Tennessee
- North Carolina
OUTBOUND
- Illinois
- New York
- California
- New Jersey
- Maryland
Why Are People Moving
- 25% – Pandemic
- 35% – Financial
Specific Reasons
- Affordability
- Safety (Covid)
- Family
- Weather
Markets Where Home Prices Are Declining
- Destin, FL
- Honolulu
- Bloomington, IL
- Erie, PA
- Shreveport, LA
- Terre Haute, IN
70-80% of Movers Are Moving Within the Same State
Good Potential Fringe Markets for Investors
In Conclusion
If you take the time to do the research, look at the numbers and dig into the regional markets, you will find excellent pockets of promising investment opportunities. But you need to do the homework!
The economy and the numbers do support the fact that there will be even better opportunities at the end of 2021 and into 2022. What with expiring forbearances, mortgage delinquencies and uncertain unemployment factors, the likelihood of declining sales prices, leading to a recession are more and more evident. This certainly will have it’s drawbacks on some people but, as real estate investors, it may mean major opportunities not just for profit but to help transform communities fopr the better.
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