This is what the “housing crash” looks like.
Some people are still apprehensive about the housing crash, according to real estate professionals and some consumers. Let's look at some actual numbers to have a better understanding of what's going on.
So, I just went to the listing I just received in Southern California for $1.7 million, and I was pleasantly surprised to hear that the seller is already up-to-date as to what is happening. He told me, “I know where we’re heading. I know what’s happening. I understand the market, I read the news.”
And I thanked him because I was so surprised that someone finally knows where the market is going. Let's look at some data so I can show you exactly what the crash looks like.
Head’s up: It doesn’t look like a crash.
The first thing I want to talk to you about is mortgage rates. According to the 30-Year Fixed-Rate data from Freddie Mac, mortgage rates from December 2021 are at 3.11% and have been steadily going up to 5.3% as of May 12th, 2022.
Mortgage rates went up dramatically a few months ago, but as of May, it looks like it is slowly evening out.
This is why.
According to Odeta Kushi, Deputy Chief Economist of First American, “While some additional Fed tightening is already baked into today’s average mortgage rates, ongoing inflationary pressure remains likely to push mortgage rates even higher in the months to come.”
They are estimated to go up towards the high fives, maybe even up to the low sixes, and that is the reality.
According to data by Showing Time (owned by Zillow), the number of showings this year crushed pre-pandemic numbers. They provided a graph showing the index of house showings in March over the last five years.
What Showing Time does is it keeps track of all the showings from all the buyers, and it shows you the numbers because more showings typically mean more activity that’s going on.
Before the pandemic, in the years 2018 and 2019, showings are at 167.8 and 156.7 respectively. It dropped to 128.5 in 2020 when the pandemic began, and skyrocketed by last year and this year at 283.8 and 284.4 respectively. Showings went dramatically up, almost double the numbers from pre-pandemic showings.
Why is this important?
Because it is necessary to look at where the market currently is: People are still looking for homes.
The good thing is, that listings are up. That means more properties are coming in on the market.
Some people interpret this as the perfect indication that there is just gonna be an influx of homes coming in from foreclosures and more people trying to put their homes on the market, causing the housing market to tank. But that is not necessarily the case.
From their data on new monthly listing counts from January to April in 2021 and 2022, the number of active listings has been steadily going up from January to April 2022.
And according to Realtor.com, active listings increased in the last two months.
Realtor.com showed a beautiful graph showing the trend in house listings from January 2021 to April 2022. The graph showed the peak in the number of listings from August to October of 2021, and it starts dipping towards the fall. It starts rising again by the end of the fall, providing a visual representation of how real estate is cyclical.
In summer, more people are looking for homes to buy. So, it’s normal.
Finally, it is looking like inventory is coming back to life. Let’s see where this ends up.
These are all data-driven conclusions. And it is important to understand because a lot of people are going all-in on emotions. I still see people talk about how the stock market is crashing, jumping to the conclusion that real estate is going to crash, too. But the data shows us that’s not going to happen.
If the stock market crashes, we have other problems, right? But fortunately, for real estate, most people have equity in their homes, the majority of them do, because of the rapid rise in equity that homes have gone up through the pandemic.
According to Danielle Hale, Chief Economist from Realtor.com, “…There’s a long uphill climb to balance, but it starts with heading in the right direction, and April data shows a lot of promise.”
What she’s talking about is, that now that more homes are coming out in the market, it’s going to even it out for those buyers that have just been outbid every time. You saw how many showings people are going on.
Let’s talk about foreclosures. I keep on hearing that there is an “invisible” inventory that’s just going to drop, and then, all of a sudden, the market is going to tank on the real estate side. I want to show you some of those numbers.
Because according to Black Knight, “…92% of the 8.2 million homeowners who sought forbearance protection [have] exited those plans.”
Let’s make better decisions and let's use our words wisely so we don’t scare people just based on emotions.
Research data by First American and MBA show how concerns regarding forbearance are different from what happened. The initial forecast for the percentage of loan forbearance that will go into foreclosure is 30%. If it happened as forecasted, it would have been pretty bad for the real estate market.
But the actual peak is at 8.6% in May 2020, right after the pandemic, when everybody was scared and freaking out. From there, the numbers steadily kept on falling. By 2021, the numbers were down 5% and kept falling to 1.41% by December 2021. And by March 2022, the percentage of mortgages in forbearance is now just at 1.1%.
Loans in forbearance are still falling.
“Foreclosure activity has continued to gradually return to normal levels…But even with the large year-over-year increase in foreclosure starts and bank repossessions, foreclosure activity is still only running at about 57% of where it was in Q1 of 2020, the last quarter before the government enacted consumer protection programs due to the pandemic,” says Rick Sharga, EVP of Market Intelligence from ATTOM.
In 2017 and 2018, when we weren’t talking about foreclosures, we had 314,220 and 279,040 foreclosures respectively. The average number of foreclosures from 2017 to 2019 is 290,260, and yet, 2020 is short 161,260, and 2021 is short 252,220 foreclosures from the average pre-pandemic number of foreclosures.
“Forbearance and seriously delinquent loans continue to decline to pre-pandemic levels, attributable to the strong housing market and loss mitigation activities implemented by policymakers, investors, and mortgage servicers,” according to the RADAR Group Report on Mortgage Forbearances and Delinquencies.
This is the reality of the housing crash you keep hearing on the news.
Mortgage rates are going to go up a little bit more. The stock market, I don’t know where it is heading, but it is still fluctuating a lot. However, as far as where the housing market stands (as of May), we’re good.
Inventory is still low even though it is growing. But remember, real estate is regional. Miami is hot, and the housing market there is out of this world. In parts of California, where I am, stuff is still selling overnight. And I know some areas are cooling down, so pay attention to your areas.
If you are looking to buy, pay attention to your market. And get an amazing real estate agent that has the experience and can help you out. One that gives you the attention and information that you need.