As house prices skyrocket across the country, wages stagnate and millions face unemployment, homeowners and buyers want to know if the current real estate market on fire, dubbed ‘boom in the dark Is about to calm down.

Despite a chaotic year, experts are still betting on housing.

Overall, the pandemic housing market has defied all expectations by outperforming the 2019 market in volume and price. New home sales in September were 32% higher than the same month in 2019, according to the Census Bureau.

And just because home prices were easy on the wallet. On the contrary, prices rose 8% year-on-year in August, according to the latest housing price index from the Federal Housing Finance Agency in the United States.

Of course, exceptionally low mortgage rates are tempting buyers, but even cheap loans are not enough to offset high home prices in almost every market.

In fact, median-income earners, those earning $ 72,900 a year, could only afford 58.3% of new and existing homes sold between early July and late September, according to recent data from the National Association of Homebuilders. . This is down from 59.6% in the second quarter of this year.

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Home prices could drop, but expect mortgage rates to stay low

The perfect storm of soaring house prices, stagnant wage growth and economic uncertainty due to Covid-19 will lead to a correction in house prices, said James Stack, chairman of InvesTech Research and Stack Financial Management in White Fish, Montana.

“When you watch the kind of boom that leads to speculation and a disparity between price and value, that’s where the risk is created,” says Stack. “This high valuation has occurred over the past 18 months, making homes unaffordable. House prices are probably at their highest. If interest rates go up, we’ll see prices go down.

So far, there is no sign of rising mortgage rates. On Thursday, 30-year fixed-rate mortgage rates hit their 12th all-time low of the year, falling to 2.78%, according to Freddie Mac.

Rates remain low thanks, in part, to major help from the Federal Reserve, which implemented a $ 1.25 trillion program to buy mortgage-backed securities (MBS) in order to inject liquidity in the market. The Fed spends around $ 40 billion a month on MBS and plans to continue, at least for the foreseeable future. At Thursday’s Federal Open Market Committee (FOMC) meeting, Fed Chairman Jerome Powell pledged to continue this program.

“Over the next several months, the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current rate to keep the market functioning well and help foster accommodative financial conditions, supporting thus the flow of credit to households and businesses. The Fed said in a statement.

Most experts predict that rates will stay low until 2021, which will help support lending activity.

Lower the prices, don’t pop the bubbles

Low housing inventories are keeping house prices on the rise, a scenario that makes sense. Scarcity usually drives up the value, so as homebuilding picks up, experts predict that prices will fall, especially in overheated markets, but not collapse, in part thanks to the current equation of supply and demand.

Currently, there is a housing deficit of around 1 million units across the country, with a current resale inventory and new single-family units less than 4 months of supply.

“Given favorable home buying demographics and historically low interest rates, this inventory tightening has pushed home prices up faster than incomes, hurting housing affordability,” said Robert Dietz, Senior Vice President and Chief Economist of the National Association of Homebuilders.

The current trend of enthusiastic buyers moving from urban centers to more affordable suburbs and even suburbs is also a good indicator that the market will remain strong.

This is all the more true as millennials – most of the first-time buyers– grow old and start having families. As Covid has changed the way people work, allowing people to work remotely, many of these buyers are moving away from big cities for more affordable areas.

Additionally, repeat buyers are increasing in more rural areas, as home offices and outdoor spaces have become a higher priority since Covid.

“Let us keep in mind that as demand shifts from central areas to nearby suburbs, suburbs and even rural markets, the growing number of people in their 40s and 50s, the first few years of buying products. ‘a house, will also increase. These are bullish indicators of single-family housing demand and construction, ”Dietz said.

Abstentions are not a big risk for the market

Currently 5.4% of mortgage borrowers, or 2.9 million, are in business abstention plans, which is slightly lower than the 5.7% last week. In total, those mortgages are worth $ 584 billion in outstanding principal, according to data from Black Knight, a real estate data analysis company.

On paper, this can be a disturbing picture; However, homeowners today have options, says Michael Fratantoni, chief economist and senior vice president of research and industrial technology for the Mortgage Bankers Association (MBA).

Homeowners facing financial hardship due to Covid may be able to exit forbearance and modify their loan, depending on their lender and their financial situation. A loan modification would change the terms of the loan (this could include lowering the interest rate, reducing the principal, or taking a longer mortgage) to make the mortgage affordable.

However, for homeowners who don’t qualify for loan modifications, or who still wouldn’t be able to pay off the mortgage even with a mortgage, selling their home is still a good decision.

Unlike the perilous days of the 2008 housing crisis, when homeowners were underwater with their mortgages (they owed more than what their home was valued at), many homeowners today have record highs. equity in their home. According to ATTOM Data Solutions, around 3.5 million, or just one in 17, homes mortgaged in the third quarter of 2020 were seriously underwater.

“Supply constraints and rising prices mean that if you have a homeowner who loses their job, they can sell their home fairly quickly in almost any market,” says Fratantoni. “If they bought a few years ago, they will sell and have money in their pockets.”

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