COVID-19 had a negative impact not just on our private lives, but also on the world’s economy. Will this cause a housing market crash in 2021?
When COVID-19 pandemic started in March 2020, it immediately became clear that it will negatively impact every aspect of our lives. One of the first predictions included a housing market crash that will follow the economic crisis that was about to start. Number of home sales was dropping quickly and both homesellers and buyers decided to wait for the pandemic to end. Back then, it seemed certain that we’ll experience a housing market crash in 2021 at the latest.
However, now in the end of 2021, it seems like this scenario isn’t likely to happen. Mortgage rates have dropped, and this has led to the increased number of buyers. Demand is growing fast, and home prices have started to rise. Many of those who have predicted a housing market crash in 2021 now have changed their opinions, while others have simply pushed them for a later period.
So, will we experience a housing market crash in 2021?
Truth is, this isn’t likely to happen. Several real estate market analysis have shown that the new crash probably won’t happen, at least not any time soon. There are several reasons why this is probably the case. We’ll explain further on.
How Bad Will It Be when the CARES Act Ends?
The first thing that worries people is the end of the federal mortgage forbearance program that was introduced by the CARES Act. As it ends on 31st December 2020, this means that many people protected by this program will now risk being evicted from their homes. A high number of foreclosures is typically the first sign of a housing market crash, and the same thing happened in 2008 right before the big recession.
While it’s true that the market will end flooded with foreclosures next year, the situation isn’t quite the same as in 2008. Let’s look at the numbers.
In October 2020, there were just a little under 3 million loans in forbearance. In 2008, right before the housing market crash, that number was above 10 million. This is over three times more. Not just that, but the numbers are declining. Back in May, the number of loans in forbearance was almost 5 million, but this has been dropping. Also, the national unemployment rate is slowly but surely recovering, which means that more homeowners will pay off their loans and get out of forbearance.
In fact, the end of CARES act will impact the momentum of the housing market, but it won’t cause prices to crash. Another reason behind this is that banks have prepared themselves for an economic situation such as this one, learning from their mistakes in 2008. Sure, no one predicted COVID-19 pandemic, but a global economic crash has been a disaster waiting to happen.
Are the House Prices Dropping?
Despite what one might think, house prices are, in fact, rising at the moment. For the first time, the national median price for a home surpassed $300,000 in July 2020. This is about 12% higher than the last peak, which isn’t lot considering it was 10 years ago. Still, if we think about the situation the world is in, this is pretty good. As the interest rate is at historical lows, more and more buyers are trying to take the opportunity to find a perfect home, while sellers are trying to cash in on a rising demand. The rise of prices is the trend in every region, including buyer’s markets such as Wisconsin.
Still, it is estimated that it might take until the first quarter of 2021 before the supply goes back to normal. This might drop the prices for a little bit, but they will still be around the national average. The potential increase in number of COVID-19 cases might halt this rise, but at the moment it doesn’t seem like it could reverse the situation.
What about the Imbalance between Supply and Demand?
Another factor that contributes to the housing market crash is the drop of demand joined with the increase of supply. Currently, though, we have a strong demand. In fact, NAR reported that sales have increased 21% over the year and the trend is only continuing. At the same time, the supply is at historic lows. Because of this, prices continue to rise. These aren’t conditions that could lead to a housing market crash. Quite the opposite, the market is fairly strong at the moment.
Still, there are some worrying signs. One of them is the unemployment rate, and the second one is the lack of announcements for a recent economic stimulus. If these continue, the demand might be damaged. However, this isn’t a likely scenario. There are several indications that there will be economic stimuluses in early 2021, and the unemployment rate is still declining. While some markets, such as Wisconsin, remain a buyer’s market, there are predictions that this will change for the better, while seller’s markets are pretty stable.
When Can We Expect a Housing Market Crash?
Predicting a next housing market crash in such conditions is a very difficult task. However, most experts agree that it won’t happen in 2021. Sure, some real estate markets are at risk of price drops, so far there are no signs that the situation will be anywhere near 2008. Some areas might experience hardships, but the market overall is pretty stable, and it seems like that will last.