Will the housing market collapse in USA during 2021?
I started my real estate career 20 years ago. I witnessed firsthand the meltdown of the housing market in 2008. I want to compare certain conditions of the economy back then and current conditions during Covid-19.
There is a say in the Spanish language; “let’s not cover the sun with one finger,” there will be repercussions. But something to point out is that the current condition of the housing market in many aspects is the complete opposite of what we experienced back then. Let’s look into the facts.
1.Subprime lending, variable rates, non-verification of assets or income, uninsured loans were the day to day in the industry before the 2010 regulations, I used to run into people who will say, I have 5 houses I am going to buy more. These pillars of the mortgage industry were weak and unfortunately such situation set multiple people for failure.
When Covid arrived in the USA at the beginning of 2020, it found a strong foundation for the housing market. In 2010 the president had signed the Dodd-Frank wall street reform and consumer protection act; this way, creating multiple disclosures, the consumer is presented explaining in detail options before committing to the purchase of a home. This way providing clarity and educating. 90% of first-time home buyers have fixed interest rates, insured loans and have gone under verifications to prove they can afford to buy a home.
2. During 2009 the country had close to 3 million homes foreclosed, 2010 showed similar numbers, 2011 2.6 million, 2012 1.8 million. In a matter of 4 years, more than 10 million home owners in North America lost their homes. So far, the number for 2020 reflect that during the 3rd quarter of the year, approximately 27,000 cases of foreclosure were filed by lenders (numbers provided by www.realtytrack.com). 2021 will reflect a more significant number than the year before, but it is forecasted that it will be significantly lower than the figures in 2008, 9, 10, and 11. But why? Well, 65% of homeowners currently have an average of 155,000 equity built into their homes, that combined with the current housing high demand, will allow them, in many cases, to skip foreclosure and sale at market value.
3. Interest rates back then were a lot different than now. It was common to find homeowners who had two loans on their homes, the main loan with a rate close to 6%, 7%, or higher and a secondary with interest rates in the 9%, 10%, or higher. Also, subject to adjusting, which combined with the drastic reduction in home values due to the amount of inventory for sale Versus the demand left homeowners in many cases with only two options: short sale or foreclosure, because they owed more than the home’s value.
This time around 2020, interest rates were reduced drastically as low as 2% giving motivation and buying power to 60% of the population that is not currently struggling financially. The government also delayed the foreclosure process, giving the homeowner time to catch up with payments or sell. We now see low inventory and unprecedented amounts of buyers shopping for a home, which is the complete opposite of 2008.
These three facts of the current economy have been favorable for a significant percentage of the country’s homeowners. It is not anticipated a collapse to the housing sector in the short term. We also won’t see massive amounts of foreclosures. This is also backed by the forecast about unemployment levels expected by the end of 2021, which will be at 5%, making them very close to the 3% we had before the pandemic. Of course, the country now owes more money, and we are yet to see the 30% of the population who lost jobs be relocated into new employment and deal with the inflation in housing values, but the recovery is showing signs of happening relatively fast during the next two years. This time around is definitely a different situation than before, I will continue watching the economy and providing updates and forecasts.