There has been a lot of buzz lately about whether the real estate market will crash in 2021…I say that will not happen! Let’s look at the reasons why.
1. Loans and the inability to repay them are treated differently today.. Unlike the 2008 market crash, lenders have not been making a plethora of bad loans since the market corrected; instead they have been very cautious about assuring that borrowers are well qualified and have low debt to income ratios. This is the opposite to the 2008 crash, where lenders had been making bad loans to virtually any buyer with a pulse for years leading up the the crash.
In the crash of 2008 banks were forced to foreclose on millions of bad loans because the borrowers could not pay them. In contrast, today the banks do not want to foreclose on loans. Instead, they will tack missed loan payments onto the end of existing loans (forbearance), thus creating deferrals instead of foreclosures. This is due to the Coronavirus and related job and economic issues, and millions of borrowers are currently utilizing loan forbearance as they struggle through difficult times. These measures will save us from a collapsing market.
2. Low supply and high demand. If you are a buyer, seller, investor or simply keep up with the real estate market, you know that the demand for real estate is and has been very high for some time. The supply is also at an all time low, and that is what continues to drive prices upward as we stay firmly in a seller’s market.
It is important to note there is a difference between a market collapse and a market correction. In 2008 the market collapsed – there were 1M+ loans that went into foreclosure – an unprecedented event. With a market correction there are changes in the market that have an effect on buyers and sellers but do not decimate the market. These changes can occur in rates or in supply/demand. Once rates go up, demand goes down, or when supply starts to skyrocket (or any combination of these), the market can see a correction, which will equate to a shift from a seller’s to buyer’s market. This will bring prices down. This situation is inevitable in the near future, and I believe we WILL see a correction (higher supply, lower demand, higher interest rates), possibly later this year after the Spring/Summer selling season.
3. Interest Rates. As mentioned above interest rates play a big role when it comes to home buying. The exceptionally low interest rates we have seen in the last few years have compelled buyers to purchase homes, despite high prices and multiple offer situations in many cases.
Interest rates were at an all time historical record low in Summer 2020. As we head into the 2021 Spring/Summer markets rates will go up at some point. This will likely create urgency to purchase before they get higher. As we head into Spring I believe we will see much the same as we have been seeing with high prices and low inventory and interest rates…BUT that should all start to change at some point, likely Summer or Fall.
If you are considering selling now is definitely the time to get the best price for your home. If you can hold on for some time and rent after you sell you may have a chance of getting a better sales price on your next home, BUT also may face higher rates. So you need to have a plan A and a plan B if you are selling. I suggest speaking with a seasoned real estate agent and your financial adviser prior to making a decision.