Housing Market Crash In 2021 - What The Media Missed!

The national news media continues to push the narrative of a housing crash looming just beyond the horizon and they feed the flames of fear by pushing information that appears to indicate that the real estate market has peaked and is about to decline rapidly. They use trigger words like “bubble” and “crash” and headlines like “pending home sales fall for 3 straight months” that seem to indicate it’s already starting to happen. If you like to stay informed about real estate, whether it’s the Atlanta real estate market or somewhere else, you can’t help but find these stories.

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Transcript of video:

My name is Ryan Ward, I’m the broker and owner of Premier Atlanta Real Estate and I’m going to try and add the proper context around these housing market stories so you can have the correct perspective and be better able to draw more accurate conclusions about what may or may not happen in the real estate market so you can feel comfortable and confident buying, selling or investing in real estate.

News and conventional media are still important sources of current information. Just be aware that context matters and news media, no matter how hard they try, are not really experts at anything including the real estate market. Their job is to report what they believe to be important stories - which is fine. However, if you see or hear something on the news of interest or concern, I recommend further investigation into what all of it means before drawing conclusions. There are plenty of people, including myself with an opinion of what the future holds, and the truth is, none of us really know for sure what it will look like but reading the tea leaves and gathering all of the pertinent information correctly can at least give us a more educated prediction than a journalist reporting a story.

The most frequently cited reasons concerning a pending crash basically revolve around a few basic ideas:

1. Home prices are rising too fast and they are becoming unaffordable
2. Unemployment is/was through the roof and too many people are in forbearance and that will lead to a wave of foreclosures that will flood the market causing prices to plummet
3. Rising interest rates could kill the market
4. Recent citations of increasing mortgage rates and news stories of month to month sales slowdowns

In a previous video on the Atlanta real estate market, I looked at a Freddie Mac study about forbearance that provides a great deal of evidence that we will ultimately have far fewer foreclosures than some will lead you to believe. When you look at all of the available information on forbearance it’s pretty clear it won’t happen the way worst case scenarios play out unless something unforeseen takes place to alter our economy in ways we can’t yet imagine. We’re literally months away from the country and the economy reopening fully and even places with the most severe shutdowns are now coming out with statements about the need to reopen as soon as possible. The latest Mortgage Bankers Association report shows a reduction in the total number of homeowners in forbearance and I think it’s reasonable to expect that number to shrink as the vaccine gets implemented and more of the economy opens and more jobs return. I’ll post a link to the section in my last video and to Freddie Mac’s article if you would like to learn more about it. Just know there will be no foreclosure wave in 2021 especially with the extension of the foreclosure moratorium through the end of March.

In my intro, I noted that many are throwing around the words bubble and crash. For some, it’s just a headline grabber to get views and ratings and for others, I think there’s a sincere belief we are currently in a bubble. I’ve been selling real estate since 2004 and have had a team of agents since 2006 and we experienced the real bubble, first hand. Back in the last housing crash, under qualified owners became speculators because basically, if you could fog a mirror, there was a lender ready to give you money and the rush was on and demand soared. What happened then was that underqualified owner-speculators and over-easy credit guidelines set the ball rolling for the bubble in 2006-2007. There were of course more intricate and nuanced reasons related to the mortgage and finance industries but the easy credit led to a speculative frenzy.

It’s very different now. There’s no speculative frenzy and there aren’t any over-easy credit opportunities occurring like last time and, speculation really is one of the requirements and main ingredients for a bubble. However, prices really are rising and doing so fast so it’s very easy to see how it feels like a bubble. It’s at this point you start to look for statistics that confirm your belief, confirmation bias sets in, and some objectivity is lost.

For example, the chart you see here shows housing prices calculated with inflation. This is a scary chart and if you look, you do see what appears to be a bubble. I really think it lacks some context because it’s missing how important interest rates are when we think about the housing market. John Wake of Real Estate Decoded has a great article on this and I’ll post a link to his analysis for you. He created a chart that shows something very different than the first scary chart I put up after you adjust for rising prices, inflation, and interest rates. Surprisingly, he found that if you have a mortgage today, your payment is lower today than it was in 1990. Hard to believe this could be the case and makes it that much harder to believe we are in a bubble as well.

The next thing you may have heard is that sales are down for 3 consecutive months. You know what? They are supposed to be. It’s not a news story!

Here’s an important tip:

Anytime I hear sales data in a format that compares one month of sales to the previous month, I get a little suspicious and you should too. A better measure is to look at current sales in a month vs the same month one year earlier because it accounts for the real estate sales cycle. Market predictions can’t be made in a meaningful way comparing a month to the next month alone. Instead, We would compare June with the previous June. Or the last 3 months with one year to one year and three months back. This gives us better data to assess what’s actually happening.

Nobody should be surprised that November sales are lower than October sales or that January is slower than December. This seems to me to be hijacked data to sell you ideas based on what might be a faulty premise. I would again suggest you check with a local real estate expert to see what’s really going on. Let me give you an example:

The Atlanta housing market sales cycle looks like what you see here in this graph. Slow at the beginning of the year and picks up in March through June-July and slows down through November and picks up in December and slows in January. It’s consistent. It does this every year. Imagine if I tried to tell you the market was going to crash because sales were down from July to August to September. It’s missing the needed context that it does this every year and it is expected and it doesn’t mean there is a problem or even a change in what is expected in the market! With that in mind, here’s some actual real estate data that shows there’s no trend of negative sales on statistics that actually matter here in the Atlanta real estate market:

There were 7,201 sold homes in December 2020. There were 6,548 sold homes in December of 2019. That’s actually a 10% increase in sales year over year and definitely not a slowdown. Sales are a lagging indicator and so to look ahead we can use the leading indicator of pending sales. December 2020 is the last full month of data and we see that in December of 2020 there were 5,650 pending sales and in 2019 there were 4,638. That’s a 21.8% increase in pending sales compared to what happened the previous year so it doesn’t look like we are heading for that slowdown we heard about from leading indicators either.

Different regions run in different cycles. Warmer climates may have more sales in the winter months compared to colder climates. I don’t know how it happens in your local market and this is exactly why I recommend you get your information from a local real estate expert.

Interest rates will have to rise at some point as the economy opens up and we begin to see real economic growth. It’s going to happen at some point for sure. Freddie Mac suggests it won’t happen too soon though saying: “This low mortgage interest rate environment is projected to continue through 2021 and 2022 as the Federal Reserve has voted to keep the interest rates anchored near zero for a longer period of time if needed until the economy rebounds. With mortgage interest rates averaging around 2.8% in the fourth quarter of 2020, it is forecasted to average around 2.9% through the end of 2021.”

It’s true that eventually, more inventory will come into the market as well and that will help bring a little better balance to the market but it’s going to take a lot of inventory for that to happen. The truth is we are already in a real estate crisis. It’s an inventory crisis and it’s too low. It’s so low that inventory could triple and we would still be in a seller's market here in Atlanta and as long as rates don’t double at the same time it’s difficult to imagine a scenario that would see prices decline let alone crash. With more people receiving the vaccine, confidence should return for sellers to let buyers back in their homes and that should help bring additional inventory to the market which, I believe, , will be healthy. Just ask any buyer fighting for a home right now.

Maybe the advice regarding what we hear on the news is this: when we seek real estate information, the news media can’t be your only source. Especially in the world we live in today where headlines often don't even match the stories and those headlines are often created just for clickbait and to sell ads. As is usually the case, your best source of information is likely going to be from an expert in the real estate market, locally. Even when a news story interviews an expert on a news show, they’ve usually sought out an “expert” that already fits the narrative for their “news” story.

With that in mind, as we move into the new year with the election behind us, the vaccine being distributed, and the economy poised to rebound, it’s my opinion that there will be no housing crash in 2021 and probably not at all even farther out into the future.

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