The following video is brought to you courtesy of the Epic Economist YouTube Channel. Click the video below to watch it now.
Will the housing market crash happen in 2021?
The housing market has been through a wild ride over the past few months. While some cities have seen an unprecedented upsurge in housing demand, others are registering record-high vacancies. For that reason, analysts have been arguing that the roaring days of the housing market were mostly boosted by the extraordinary amount of fiscal stimulus, as well as the extension of the forbearance period and the foreclosure ban, therefore, the frenzy experienced so far won’t last much longer.
Considering millions of Americans remain jobless and without any prospects of when or if they will ever regain their jobs, high delinquency rates might prompt a wave of foreclosures, which means the enormous price bubble will become unsustainable and inevitably pop. That’s why, according to recent reports, home buyers and sellers are getting increasingly pessimistic about the future of the housing market in face of the decrepit state of our economy. And that’s what discuss in this video.
Tens of millions of borrowers who received mortgage forbearance have now gone ten months without meeting their mortgage payments. According to a Blck Knight Inc. report on the state of mortgage delinquencies, the national delinquency rate is a full three percentage points higher than pre-outbreak levels while seriously past-due mortgages total 1.8 million above pre-outbreak levels.
Furthermore, several other sources have been confirming that the real estate market is indeed on the path for a correction. According to Fannie Mae’s reports, until the first half of 2020, approximately $203 billion of the loans guaranteed by them were in forbearance. From the $100 billion in bubble-era loans that remained guaranteed by Fannie Mae, 15% were still in forbearance. In its 2020 second-quarter financial report, the agency revealed that there were $194 billion of seriously delinquent loans late in payment for over 90 days.
Although skeptics may argue that delinquency rates for subprime mortgages were much higher during the 2008 crash and home prices have rebounded since 2012, experts say this recovery was completely artificial. The mainstream media keeps trying to sell the idea of a strong housing-market recovery during the past few months. But that isn’t what real data shows.
According to online broker Redfin, nationwide, last year, home sales were up by just 5% compared to 2019. In fact, in New York City, sales collapsed by 35% in the first half of 2020 compared to the same period in 2019. More concerningly, listings surged by 65% in the Big Apple as residents continued to run away from the lockdown calamity.
Another evidence of a downturn in the market can be seen in the percentage of home sellers who had to drop their asking price. The Redfin research found that in San Francisco, 24.5% of owners reduced asking prices, and other big cities, including Chicago, Philadelphia and New York also saw a higher percentage of reduced listing prices compared to a year earlier.
For that reason, buyers and sellers reported feeling significantly less confident about making a deal in December of 2020, according to a monthly survey by Fannie Mae. The number of respondents who affirmed it was a bad time to buy went up to 39% from 35%. When it comes to selling, the number of those who said it was a bad time to sell increased to 42% from 33%.
In short, home sellers know that making a deal right now means that they will have to make some concessions and probably lose money. As for consumers, they have been feeling less confident about the housing market because they are also feeling less optimistic about the U.S. economy. As lockdowns linger, and jobless property owners can’t afford to meet their mortgage and rental debt, the housing market will continue to be backed by unrealistic prices in a volatile environment. There’s no way it can reach an actual recovery while based on billions of debt and sparse price spikes.
Small landlords have been devastated by the lockdowns. The percentage of landlords who received a full rent payment from their tenants fell to 55%. Taking into account that there are at least 15 million properties owned by small landlords all over the nation, and many of them were already having financial setbacks even before the lockdowns began, unless a miraculous economic recovery takes place overnight and reinserts all of their tenants into the job market, the housing market is about to witness the same scene seen during the 2008 crash: a fire sale of properties of jobless and low-income owners and landlords that will trigger the burst of the sacred housing price bubble and lead the market to a dramatic correction of unprecedented proportions. This is America, and as always, someone has got to pay. Be ready for the housing crash!”