August 2020 Orange County

Housing Market Update 

It’s already that time of year again😮, kids are going back to school(virtually or in-person) which signals the start of the Fall🍂 market for real estate. We have most likely hit the peak demand as well as supply 📈and over the coming weeks and months, we will see a gradual decrease 📉 in home buying and selling activity because many families don’t want the stress and distractions of trying to buy or sell a home now that the school year has started. 

Compared to last month, inventory and demand haven’t changed dramatically. Inventory is still dropping slightly 📉week-to-week while demand is just slightly increasing📈. Last month, we were in the hottest 🔥seller’s market we’ve been seen in over 8 years🤯 and that is still where we are today.  The housing market has been one of the bright spots in the economy during the pandemic and as of this week, all three sectors(purchase applications, homes sold, and home starts) have made a quick V-shaped recovery and the data shows that Covid-19 is no longer having a significant impact on buyer or sellers. 

Buyers

The market is not going to be shifting out of a seller’s market anytime soon. The inventory is just too low. When shopping for a new home you still need to anticipate that most homes will be receiving multiple offers. Although this can get discouraging, remember, if you can stay dedicated to finding a home, you’ll be able to lock in the lowest rates ever seen in the mortgage industry👍🏻. Rates have been slowly increasing over the last week and a half, but even as they climb a bit, the are still averaging around 3% which is still better than they have ever been. With appreciation increasing month after month, at this point, the longer you wait to start placing offers the higher prices will be.

Sellers

We have most likely peaked for buyer demand this year. We will still be in a seller’s market for the foreseeable future, but if you want to take advantage of the last few weeks of peak demand, you need to get it on the market NOW. Purchase applications this week decreased slightly because interest rates have been going up so at this point the longer you wait the lower demand will most likely be.  

Also, even though we are in a hot seller’s market, that doesn’t mean you can just price your home for what you think it might be worth to someone. The data shows that if you don’t price your home correctly the first time, your home will sit on the market for an average of 35 days longer, you’ll end up doing a price reduction and looking back on the numbers from June, you’ll actually end up netting about 4% less on the sale of your house vs. just pricing it correctly when you first put it on the market. Make sure you are using the latest comparable sales when pricing your home. You can still price it on the higher side of fair market value, but if you go too far over that, buyers are smart and will not want to put in a high offer on an overpriced home. 

Finally, because I’m seeing these headlines almost daily, let’s talk about the likelihood that all of the mortgages currently in forbearance will turn into a wave of foreclosures and crash the housing market🏡. Right now there are around 4 million homeowners currently in forbearance. This represents 7.5% of all active mortgages. Out of this 7.5% of mortgages, 90% of homeowners have more than 10% equity in their homes. This is important to remember because even when some of these homeowners are eventually forced to sell their home, an overwhelming majority of them will be selling it as a normal sale and either breaking even or making a profit. This is not like 2008 where over a quarter of all active mortgages were underwater and banks were having a fire sale just to get rid of them. When homeowners who have equity sell their home, they can sell it for market value, not a discount. So although we will have some foreclosures caused by the pandemic, the CARES act will prevent those foreclosures from happening for 6-12 months so this won’t even show up until at earliest Spring of next year, and odds are by then, current appreciation trends will give homeowners even more equity in their homes as well as more homeowners will have figured out something with their mortgage lender to keep them from having to sell because they have so much equity.

The two concerns 🤔 that I DO have however regarding the housing market are:

Rapid appreciation

The market is so HOT 🔥right now that if it doesn’t start to cool down a little bit soon, we are going to see double digit year over year appreciation and the longer we continue in this hot market, the more likely a price bubble is to show up. I’m not extremely concerned at the moment, but it will be something to watch as we finish up the year. It’s also important to note that if we do have a price bubble, it’s not going to crash prices by a large percent like in the housing crisis, but it could cause the market to stall and drop a few percent. 

Unemployment

Although unemployment is still at historically high levels right now, a large percent of those who are unemployed fall into more of a renter profile than a homeowner. However, just because they are renters, doesn’t mean they don’t have an impact on the housing market. If renters can’t make payments to their landlords, then the landlords can’t make their mortgage payment, and then they could be forced to eventually sell to prevent foreclosure, or they might also just decide to sell because they no longer want to deal with being a landlord anymore with all of the uncertainty. One positive thing to note on the renter side of things is according to the National Multifamily Housing Council who tracks over 11 million rentals, missed payments for the month of August is only about 2% higher than this time last year.  

The biggest thing to watch to figure out how big of an issue this might become over the next few months will be what congress does when they come back from recess. If they do nothing to start helping out either the landlords and/or renters in the next stimulus package they pass, it will significantly increase the chances of landlords being forced to sell. Keep an eye on Congress over to next few months to see what they come up with. Although by itself, I don’t see this having a huge impact on the market, if we have a uptick on people selling their home to prevent foreclosure, and at the same time landlords decide to also start selling their homes, you could have a situation that creates an artificial “panic” in the market causing other homeowners sell as well. Right now demand is so high that it will most likely absorb this increase of homes for sale, but if for some reason(which no-one is really projecting at this point) interest rates were to also climb back up significantly next year, then there could be issues in the housing market and appreciation might halt and start heading down slightly. Again, the likelihood of all of this happening is small, but just pointing out what would need to happen for home prices to be impacted in any significant way in the coming 12 months due to the fallout of Covid-19.