The Housing Market Crash Of 2021 - Can It Happen In Atlanta?
Home prices were through the roof in 2020 despite everything else the year gave us. Since the beginning of the COVID crisis, our team has had a ton of buyers put off buying a home and the concerns they had were more or less, the same - we want to wait to see what happens, we think prices are going to come down, there’s going to be a wave of foreclosure deals if we wait a little longer, why buy now at the top of the market, this feels like a bubble and I want to wait until it pops, I can’t find anything I like at my price - and various other concerns like these. Now, these are legitimate concerns and I understand why people have them. You’ll find plenty of headlines that play into this idea of a bubble or a market crash as well. Admittedly, it can be difficult to see prices rising and rising and rising with no end in sight. It can be disheartening. It’s also true that there will be something of a foreclosure crisis at some point in the future but there isn’t any evidence that there will be enough foreclosures to swing the market in the other direction. Interest rates are also artificially low and could go back up as well and this would weaken buying power which would put downward pressure on prices. This idea of a crash or price drop seems to me to be part fear and part cherry picking of relevant data points though. Nevertheless buying a home is one of the biggest decisions that most of us make in our lifetimes so it’s an important conversation but what if I told you that it is very unlikely we see a price drop in 2020?
I mean, we all know there are ups and downs in the real estate market and it would be great if we could predict the bottom, buy at the low point and sell when the market crests thereby maximizing our profits and minimizing our risks. It’s a great plan and I can see why many people adopt this as one of the main decision points when buying and selling real estate.
I want to weigh in here with my opinion of what I think is going to happen in 2021. It’s an important topic as we end 2020 because it’s likely you will hear louder and louder warning sirens that the market is going to shift and prices are going to drop. Then, you may end up being like the people I described earlier and remain sitting on the sidelines looking back a year from now and only then realizing you should have bought a house 2 years ago at the beginning of the crisis. You will have lost 2 years of significant appreciation and equity building along with the additional tax benefits that come with home ownership and paying down of the principal balance banking yourself even more equity and security.
There’s a lot to look at here so let’s start with where the market is right now and how the market has changed over time. This chart shows the median price of a home in the United States since 1980. As you can see, there is really only one significant period of price decline in the last 40 years and that took place from the summer of 2007 through the 1st quarter of 2009. So really, the worst case in the last 40 years saw prices that declined for 2 years. It did take about 6 years for the prices to get back to pre-housing crisis levels but this is only for a very small group of people who bought that summer...so there are a couple of important points here. 1. We have to recognize that prices have fallen in the past and that makes it easier for people to think it can happen again. 2. In my opinion it is a near impossibility that the 2021 financial situation could even remotely resemble anything like what was happening back in 2006-2008. This is not a world financial crisis like what happened then - which actually began in the housing sector with over-extending credit. Instead, what is happening today is caused by COVID - a non-financial, temporary outside influence that will begin dissipating because of the vaccine as we move into 2021. Here in Atlanta, we can see the same pricing trends, generally, that we see across the country. The only difference here is there is even less fluctuation, a bit more stable in what we have seen. These aren’t the kind of charts that indicate prices are about to drop. We certainly need more information to draw a responsible conclusion and we’ll use this as one of our data points.
Next I think we need to really address just some basic fundamentals, supply and demand.
Supply has been dropping consistently since 2010 and continued to drop throughout 2020. We know that when COVID became our reality, supply was still dropping. It shrank further and immediately once many sellers decided to keep their homes off the market. It’s certainly understandable that sellers were worried by having people in and out of their home during a pandemic. As we end 2020 and 2021 begins, we have COVID case numbers higher than at any other point. We are still months away from full distribution of that vaccine at the earliest so this means supply will remain low. Here in Atlanta, we have the lowest supply on record and basically shrunk every month since the shutdown. We currently have about a one month supply of homes at the Metro Atlanta at almost all price points.
The flip side is demand. Admittedly, back in March of 2020, I don’t know of many people who believed demand for housing would be anywhere near as high as it turned out to be. In fact, most reasonable people felt as though it would be lower. In reality, demand for housing in 2020 outpaced the demand for housing in 2019. It’s hard to imagine that demand could be higher in 2021 than in 2020 but there are certain indications that will make it possible! The Fed pledges to keep interest rates near zero and many members say it may stay that way as far out as 2023. Low interest will help to keep demand high.
So the fundamentals will make it very hard to see any path that leads to prices dropping when we look at supply and demand. Here’s a real world example of what I mean. You can see here that as of the time of recording today, we have about 7800 active listings and also a one month supply. To reach a balanced market (neither a buyer or seller market), we need about 6 months of inventory. Put another way, if 2021 sales approximate 2020 sales volume, we will need 6 times the number of listings to have a balanced market. Instead of the 7800 listings available, it would need to grow 6 fold to well over 46,000 listings!
Now, there are some things that will happen beginning in the second half of 2021 that may begin to play into the market cooling some but not changing the balance. We’ve seen some states lift the foreclosure moratoriums and that means sometime late 2021 or maybe into 2022, we may see some of those properties make it into the market. This will increase the supply a little, but not too much. Another group of people - those that chose forbearance and are unable to get caught up, may find themselves in a situation where they need to sell their homes as a last resort to save their credit so they may also sell - however, don’t expect them to be short sales or even distressed properties, really. I don’t expect anywhere near enough of them to happen to shift us to a buyer’s market. Even if they hit the market, they will sell quickly and most if not all of these homeowners have equity - and this is an important point going back to something I said earlier and that this is very different than what happened during the financial crisis.
So if you are holding out, waiting for prices to drop and eventually decide to buy, there is a good chance the market will have pushed prices higher. What that means is that the money you spend in the future will buy less of a house than you can buy today or you will spend more money to buy the same house.
You know, there really is one more important takeaway that I have to include as relevant information here and that is that we, as a society, are resilient. We find ways to adapt to changes. We always have and we always will. It’s a reason to be optimistic about outcomes. History proves this out over and over and we literally witnessed it happen in 2020. Demand outpaced virtually all early projections of what might happen. In fact, as we end 2020, it appears there will be about 1% more sales in 2020 than there were in 2019. Lower supply and more demand for housing is an equation that simply can’t lead to lower prices.
So if you are considering buying a home and you’re on the fence, I am definitely of the opinion that waiting will cost you more money than buying now and that prices are much more likely to rise than to fall. It is my opinion that there will be no housing market crash in 2021. Interest rates are also hovering at an all time low and they fluctuate up or down a little daily so you can’t know when they will be the lowest until the time has passed.