You are currently viewing Coronavirus Housing Crash Myth Destroyed! Episode 12

Coronavirus Housing Crash Myth Destroyed! Episode 12

Episode 12: Coronavirus Housing Crash Myth Destroyed!

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Episode Transcript 012 – Coronavirus Housing Crash Myth Destroyed!

Welcome to another episode of the Agent On Duty podcast.

I’m John Marion and I am the Agent On Duty.

This is Episode 12.

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In today’s episode….

I’m going to talk a lot about the things we can expect to see in the 2021 real estate market. And I’ll make some comparisons with what we experienced last year in 2020.

I’m going to give you some quality market data so you can make an informed decision about buying or selling real estate this year.

By the way, be sure to visit the show notes to access infographics and links to the statistical data mentioned in this episode. Go to innovativeproperties.com/podcast for the show notes to this podcast episode.

Recession Does Not Equal Housing Crisis

Now if you think about what has happened in 2020 with the Coronavirus pandemic, COVID-19, and the political turmoil in the United States, as we look back at last year, it’s really important to be level headed about the real estate market by looking at actual data in order to formulate informed opinions and make the best decisions you can when it comes to buying or selling in 2021.

There was some talk about a real estate crash in 2020 or maybe one that is coming in 2021. Well we are going t look at the data and stats that reflect reality of where we are right now in the real estate market.

In short, 2020 was not 2008 all over again.

While there has been a lot of negative news last year, what actually happened in the housing market was not negative. Home prices appreciated, inventory dropped, and the equity that home owners have in their home increased significantly. This is in stark contrast to all the quick one-line zingers, memes, and incoherent comments that we often hear on social media that the sky was falling last year.

Last year we were reminded that recession does not equal a housing crisis. I talked about this last year. Now we have this year’s numbers that have come in from the CoreLogic National Home Price Index, showing home prices rose. In fact, home values rose over 7%: 7.3% according to CoreLogic in 2020.

And when you look at six previous recessions, over 65 percent of the time, home prices actually appreciated during recessions.

Now 2008 was a historical housing market crash where home prices went down nearly 20% of value. And a lot of people thought 2008 was going to happen all over again. But the situation was so different in 2020. And I kept telling everyone what was happening in the real estate market and they were surprised to hear what I said because it was so different than what many people were hearing online and in popular media.

So my team of real estate agents were out there in the market informing home owners about reality and we continue to inform everyone about what is actually happening. And now I can tell you in detail what happened to home prices over the last year.

Although 2020 will be known economically as a recession, the data shows that for homeowners their has been a 7.3% rise in home value!

Think about that! Coronavirus recession, loss of income, hard times, but home values increased!

Home Equity

And this story of appreciation in home values translates into the growth of home equity.

Home equity has been a critical factor that has helped people across the county in a lot of different ways,

Home equity is a form of wealth that has helped home owners the financial storm of the coronavirus recession. Unlike 2008, home owners have the ability to go out and sell their home now if they need to. They are not underwater on their mortgage. Their home value is much more than the debt they own on their home. There is little risk of foreclosure for most home owners even during these tough financial times for many people.

So here’s the main thing to keep in mind about all this….

Equity is the hero of the real estate market in 2020. Homeowners are not over their heads in mortgage debt.

Here’s from CoreLogic, from Dr. Frank Nothaft. He says this: “Over the past year, strong home price growth has created a record level of home equity for homeowners. The average family with a home mortgage loan had $194,000 in home equity in the third quarter.”

So as of the third quarter, that number before was $177,000 on average in home equity. Now during the coronavirus recession that dollar amount has grown to $194,000 in equity!

This is an increase in home owner wealth. And it’s a buffer against foreclosure. Now there is a moratorium on foreclosures that is going to go away in the future. But as we experience the fallout of the pandemic and the challenges that has been caused in businesses and the economy across the country people have the opportunity to weather the storm of this recession because of the current moratorium on foreclosures. And the amount of home equity is going to keep the foreclosure rate extremely low – nothing close to what can be called a “housing crisis”.

But wait, there is more good news!

When we look deeper at the statistic – again, $17,000 is the average gain in equity on a mortgaged home. We just talked about $194,000 being the average of a home with a mortgage on it.

CoreLogic, the source of these statistics, says almost 40%, it’s 38.2%, of the homes are owned free and clear in this country.

There’s been 10.8%  the increase in equity across the board, totaling over a trillion dollars since the third quarter of 2019 compared to the third quarter of 2020.

Again, the coronavirus recession is not a housing crisis.

There is a tremendous growth in home equity that’s happening all over the country.

I have a graphic map showing the home equity growth by state. Here are a few examples:

Virginia, $22,000
California, $34,000
Georgia $13,000
Pennsylvania $10,000

I’ll post the chart in the show notes.

As a home owner, you can and may have already, taken advantage of the opportunities with your home equity to weather the storm of the Coronavirus recession. And for many people this opportunity includes selling in a high priced housing market and moving to another location where homes are less expensive. We are experiencing this big time in the Atlanta suburbs right now with a huge influx of people  moving here.

The housing industry and real estate market has been a strong pillar during this economic and political volatility that we have experienced.

There has been a significant rise in demand for homes while mortgage interest rates have remained historically low. This is helping to safeguard the equity people have in their homes.

Everyone has been spending more time than ever at home. And so home renovation projects have increased. This has been made possible because of the increase of equity in home values.

The equity you have in your home gives you options.

You can use it to weather a financial storm.

You can use it to add additional living space to your home.

You can use it toward buying another home in a location that now makes more sense to you. And think about that. You now have the opportunity to live a totally different lifestyle that you may have never imagined before!

Our lives and our society has completely changed and you have fantastic opportunities!

And now there is even more good news. Listen to this….

As I look forward the what can be expected in the housing market over the next few years, here is a few things to consider…..

The most recent home price expectation survey shows us that over the next five years, the average home, $300,000 home, if purchased today, that homeowner stands to gain in appreciation about $50,000.

This value appreciation and increase in home equity is the benefit of home ownership today. It provides a lot of opportunity.

  • start a business
  • send a child to school
  • fund an idea or project you’re working on

Again, the huge changes that have taken place has resulted in a lot more people working from home. And working from home now gives you opportunities that you didn’t previously have.

You are probably not driving the be at work in an office 5 days a week. Even if you don’t work at home 100% of the time, the fact that you no longer have to commute to work every day deeply affects your decisions about selling and buying a home. Relocation is now an option for you.

You have many more places that are real options for you to live.

And I’m expecting more inventory on the market this year. Many, many homeowners delayed their plans to sell their home last year. New home builders increased the rate they are building homes to help meet the demand for more housing.

So there is an expectation that as this year moves forward, more re-sale homes will be hitting the market. But more inventory on the market is still probably not going to meet the huge demand. This will result in a slow down of price appreciation but prices are still expected to go up.

Actually, looking at the 2021 home price forecast, it’s reasonably to expect home prices to increase by 3% to 4% this year. The forecasts range from 2% to 6% so I’m being conservative when I say a 3% to 4% increase in home prices is not unreasonable in 2021.

It will probably take at least the first 6 months of the year for inventory to catch up to demand to the point where homes won’t be flying off the shelf the first day or two they are listed on the market. So look for the slow down in price appreciation the occur in the second half of the year.

A lot of this is dependent on other economic activity and more people going back to work. It’s going to take some time, a few years, to get back to a lower unemployment rate close to what we saw before the pandemic, but we have experienced a huge “v” shaped recovery which projects unemployment to improve from this point forward.

By the way, if you are renting a home and will be a first time home buyer in the future, keep in mind that home ownership may not be as difficult as you think. You don’t need a huge 20% down payment to buy a home. You can become a home owner! The important thing for you to understand is the steps you need to take now to begin your journey down the path toward home ownership. Talk to a real estate agent or a mortgage lender to find out where you should start.

Another issue that will affect the housing market over the next 2 years is an uptick in foreclosures. A certain number of home owners benefiting from forbearance right now, will need to make a change sometime this year or next year to avoid getting into a situation where they could experience foreclosure. The way out will be the fact that there is equity in the home.

So if you are in this situation where you struggled to make payments on your mortgage and are benefiting by forbearance, now is a good time to consider the options you have for selling your house while you have equity in your home and taking advantage of getting into another home with a lower monthly mortgage payment. Keep that in mind and it’s never too early to develop a relationship with a real estate agent who can explain to you the options you have to list your home for sale when the time is right so that you don’t have to scramble when it comes time to sell.

A little bit of planning will help you to make the most of a situation and prevent loss by foreclosure.

Mortgage Rates

Let’s talk about mortgage rates this year and what can be expected.

The mortgage interest rate is historically low.

There is virtually only one direction for mortgage rates to go. And that is up. The only question is when and how quickly will they go up?

I’m not going to forecast, or guess, what will happen with mortgage rates exactly, but I’ll say this.

It’s reasonable to expect mortgage rates will be going up before the end of this year and into 2022. And combined with home price appreciation of 5% to 6%, the monthly payment for a home could go up by about $200 toward the end of the year compared to where we are now.

I have a graphic chart that shows this information that you can look at on the show notes for this podcast episode. It’s a lot easier to understand this by seeing a chart compared to talking about all the details. The main point that I’m making right now is that NOW is a fantastic time to buy a home and you will most likely get more for your money and avoid a higher monthly payment by buying early in 2021.

Home Ownership

As the year rolls on, I’ll be devoting more episodes to home ownership in 2021

But for now, I did want to get this information out to you to shatter any misconception you may have had about the real estate market. The market is strong and all indications are good home owners with price appreciation, increased equity, and the opportunities the current market has created for you to have so many more options for where and how you want to live!

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Call in Your Real Estate Questions

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