Magnolia Estates

Housing Market Crash: Is a Crash Coming in 2021?

Martes 05 de Enero del 2021

The US housing market is far from crashing in 2020 or 2021. In fact, it continues to play an important supportive role in the country's economic recovery. Current economic conditions resemble a "swoosh" pattern, with the initial impact from the lockdown followed by a gradual recovery as the economy reopens.

Mortgage rates and slow but steady improvements to the job landscape continue to propel confidence for first-time buyers. The pace of existing-home sales has jumped to a level not seen since 2006 and, importantly, was followed by strong pending sales, purchase mortgage applications, and construction data.

Historically, low-interest rates are also an inducement to buy homes, but slow supply growth continues to result in high levels of home price appreciation, which is offsetting some of the affordability benefits of the lower rate environment, according to the Fannie Mae Economic and Strategic Research (ESR) Group.

As Federal Reserve has made clear that it has no intention of raising interest rates soon, many households are seizing the opportunity to refinance their existing mortgages. Let's first see how various consumer surveys are responding in wake of this crisis.

The Fannie Mae Home Purchase Sentiment Index® (HPSI) is a good indicator of the houisng recovery and buyer and seller behavior. The index measures housing attitudes, intentions, and perceptions, using six questions from the National Housing Survey® (NHS). It fell 1.7 points in November to 80.0, the first decline after three consecutive months of increases since late spring.

Year over year, the HPSI is still down 11.5 points but it has recovered more than half (60%) of the early pandemic-period decline, mirroring the strong home purchase activity of the past few months.

Three of the six HPSI components decreased month over month, with consumers reporting a more pessimistic view of homebuying conditions, including mortgage rate expectations, but a more optimistic view of home-selling conditions and home prices. Moreover, consumers also reported mixed results regarding job loss concerns and household income changes.

"The HPSI appears to have peaked for now as consumers continue to consider how COVID-19 impacts their ability to buy or sell a home," said Doug Duncan, Senior Vice President, and Chief Economist. "This follows the HPSI's recovery of slightly more than half of the loss experienced during the first few months of the pandemic."

The latest survey finds out the percentage of respondents who think it's a 'good/bad time to sell a home' vs those who think it's a 'good/bad time to buy a home'.

  • Good/Bad Time to Buy: The percentage of respondents who say it is a good time to buy a home decreased from 60% to 57%, while the percentage who say it is a bad time to buy remained the same at 35%. As a result, the net share of Americans who say it is a good time to buy decreased 3 percentage points month over month.
  • Good/Bad Time to Sell: The percentage of respondents who say it is a good time to sell a home remained the same at 59%, while the percentage who say it's a bad time to sell decreased from 35% to 33%. As a result, the net share of those who say it is a good time to sell increased 2 percentage points month over month.
  • Home Price Expectations: The percentage of respondents who say home prices will go up in the next 12 months increased this month from 40% to 41%, while the percentage who say home prices will go down decreased from 20% to 13%. The share who think home prices will stay the same increased from 31% to 35%. As a result, the net share of Americans who say home prices will go up increased 8 percentage points month over month.

The Federal Reserve Bank of New York's Center for Microeconomic Data released the November 2020 Survey of Consumer Expectations, which shows that despite flat income and earnings growth expectations, households' year-ahead spending growth expectations rose sharply in November to 3.7%, the highest level recorded in more than 4 years.

  • Median inflation expectations increased 0.2 percentage points in November to 3.0% at the one-year horizon and increased 0.1 percentage points to 2.8% at the three-year horizon.
  • The increase in the short-term measure was driven mostly by younger respondents (below the age of 60), more educated (bachelor's degree or higher), and with higher household income (over $100,000). 
  • Median year-ahead home price change expectations decreased 0.1 percentage point to 3.0% in November. This is the first monthly decline in the series since April 2020 when it reached its lowest level of 0%.
  • The decline was recorded in all Census regions except the Northeast.
  • Median one-year ahead expected earnings growth remained flat in November at 2.0%, below its 2019 average level of 2.3%. This is the fifth consecutive month that the series has remained unchanged.
  • Mean unemployment expectations-or the mean probability that the U.S. unemployment rate will be higher one year from now-increased for the first time since July 2020, from 35.4% in October to 40.1% in November.
  • The median expected household income growth stayed flat in November at 2.1%, well below its 2019 average of 2.8%.
  • Mean unemployment expectations-or the mean probability that the U.S. unemployment rate will be higher one year from now-increased for the first time since July 2020, from 35.4% in October to 40.1% in November.
  • Perceptions about households' current financial situations compared to a year ago remained essentially unchanged in November.
  • In contrast, respondents were more pessimistic about their households' financial situations in the year ahead, with more respondents expecting their financial situation to deteriorate, and fewer respondents expecting an improvement in their financial situation.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now decreased 2.3 percentage points to 38.5% in November, its lowest level since August 2019.

Zillow's market pulse report dated December 18, 2020, home values are growing at their fastest pace yet - and that pace is set to accelerate further in the coming year. Sales volumes will continue their recent surge as well. Mortgage rates remain very low and look likely to stay there. And home construction activity ticked up in November.

  • Home values in November increased 1.1% from October and 3% from three months before, both records.
  • The 1.1% monthly increase in the U.S. Zillow Home Value Index in November was the strongest one-month rate of appreciation since at least 1996 when their records began.
  • Given enduring and elevated levels of demand for homes, sharp increases in home values and strong sales volumes are likely to continue in the months to come.
  • Zillow Economic Research predicts that home values will increase by 3.6% in the next three months (from November to February 2021).
  • The next forecast is that home values will increase by 10.3% in the twelve months ending November 2021. 
  • The current forecast also calls for sales volume to remain elevated in the coming year, finishing 2021 at 6.9 million sales, the most since 2005.
  • Mortgage rates fell slightly this week after the Federal Reserve reaffirmed its plans to keep benchmark rates low and maintain its pace of bond purchases.
  • Applications for home purchase loans ticked up 2% on the week.
  • November housing starts were up 1.2% from October and 12.8% from a year ago, to 1.547 million (SAAR), according to the U.S. Census Bureau.
  • Housing permits rose 6.2% month-over-month and 8.5% year-over-year in November, to 1.639 million (SAAR).
  • After two monthly declines in the past three releases, a strong increase in permits indicates builders are breaking free from the restrictions that have hindered the industry of late and appear prepared for increased activity in the months ahead.