As soon as it became clear that COVID-19 was having a negative impact on the US real estate market back in March 2020, housing market crash predictions flooded the internet. Home sales were dropping and housing inventory became even tighter as both sellers and buyers initially decided to wait out the pandemic.
Fast forward to October, and we now see a different story. Low mortgage rates have pushed buyers back into the market. Demand is far surpassing supply across the nation and home prices are actually rising, not falling.
Some people who predicted a housing market crash in 2020 have since retracted their forecast. Others, however, have simply pushed their predictions to 2021 and are now saying that the US housing market will crash next year.
So will the housing market crash in 2021?
Mashvisor conducted a real estate market analysis and talked to a few experts who revealed their thoughts on the forecast for a housing market crash 2021. The general consensus is that we won’t see a real estate market crash next year. Let’s look at some of the reasons why.
The End of the Mortgage Forbearance Won’t Be Enough to Cause a Crash
This is the first housing market prediction that needs to be addressed here. Many fear that once the federal mortgage forbearance program introduced by the CARES Act expires in 2021, we will have a repeat of the 2008 crisis on our hands.
With the end of the forbearance next year, the market will be flooded with delinquent loans- this is true. However, there are a few things to keep in mind with regards to this being the event that brings about a US housing market crash.
For one, we have to look at the number of mortgage loans currently in forbearance. The total number of loans in forbearance is 2,977,000 as of October 23, 2020. During the 2008 housing market crash, the number of delinquent loans reached over 10 million.
What’s more, this number has generally declined. Back in May, it reached a height of 4.76 million and has since been dropping. Most recently, the volume dropped by 11k week over week and 623k month over month (a 17% decline from September 2020). And with national unemployment rates continuing to recover, we can forecast that even more homeowners will voluntarily pull themselves out of forbearance before the expiration date.
Greg McBride, Senior Vice President and Chief Financial Analyst at Bankrate provided Mashvisor with some insight into why these delinquent loans won’t bring about a housing market crash as well as what effect they may actually have on the US real estate market:
While 2021 will bring the lion’s share of mortgage delinquencies, defaults, and foreclosures – particularly after the 12-months of forbearance under the CARES Act expires – it will only rob the national housing market of momentum, not bring about a broad crash in prices. The volume of delinquent loans will be but a fraction of what was seen in the housing bust and the reason is that there hasn’t been the crazy, anything-goes lending like there was in the housing boom.
As McBride states, lending requirements are more strict nowadays and it was very lenient requirements that contributed to the foreclosure crisis of 2008. Marina Vaamonde, a commercial real estate investor and founder of HouseCashin.com, also points to modern lending standards as the reason we won’t see a repeat of the 2008 housing crisis:
Due to the increased standards of underwriting and capitalization, I don’t believe the pandemic will cause the same housing market crash and liquidity crisis banks experienced in 2008. Banks and institutional investors have been predicting and getting ready for a decline in real estate prices for the last few years. Although no one anticipated COVID-19 would come along to do the dirty work, most analysts anticipated a large price drop as real estate hit record high levels year-over-year.
So it’s safe to say that delinquent loans brought about by coronavirus hardships will not cause a housing market crash in 2021.
The Imbalance Between Housing Supply and Demand Is Here to Stay
Remember, for a housing bubble to burst and a crash to occur, demand for housing needs to swiftly drop as supply continues to increase (among other things).
Learn More: What Could Cause a Real Estate Market Crash?
Currently, demand is very high. The National Association of Realtors (NAR) recently reported that existing home sales jumped 9.4% in September month over month. This was a 21% increase year over year and marked the fourth consecutive month of home sales growth. Additionally, inventory is low. By the end of September, there was only a supply of 2.7 months, a historic low. As a result, prices continue to rise.
Matt Frankel, CFP, personal finance expert, and real estate analyst at Millionacres (The Motley Fool), told Mashvisor that if such conditions were to remain in place, a housing market crash would be unlikely as long as mortgage rates stay low and a COVID-19 vaccine is released, among other factors:
As long as current conditions in the market persist, it should keep prices rising (or at least steady). Inventory of existing homes is at a historically low level in most of the United States, and record-low mortgage rates are making homeownership more attractive for many Americans. In short, there’s a supply and demand imbalance right now that is keeping the market strong.
Having said that, there are some key things to watch for that could be signs of trouble. If unemployment stays elevated and further economic stimulus is slow to come, it could hurt demand for homes. If interest rates unexpectedly spike, it could hurt mortgage demand. And if a COVID-19 vaccine is unexpectedly delayed, it could be devastating to the anticipated normalizing of the economy that most experts are expecting next year.
However, I don’t view a housing market crash in 2021 as a particularly likely event. All indicators are that we’ll get the needed fiscal stimulus early in 2021, if not sooner, and that the unemployment rate will continue to fall. And the Federal Reserve has all but committed to keeping benchmark interest rates low for the foreseeable future, which should help keep mortgages cheap. And it still looks like we’ll get a coronavirus vaccine before the end of 2020, which should set the stage for normalization of American life in 2021.
Essentially, the US housing market 2021 will remain a seller’s market and Marina concurs:
I believe we will continue to see a seller’s market going into 2021 if interest rates and housing inventory is kept low.
So, When Will the Housing Market Crash?
It’s hard to say when the next housing market crash will be. But as far as most experts can tell, we know that it won’t happen in 2021. While some local real estate markets may be at higher risk of price drops than others, so far, there are no predictions that prices will crash as they did back in 2008 in any major cities in the US. McBride told Mashvisor:
There will be particular markets that experience price softness as people move out of high-cost, high-tax city centers for more budget-friendly and spacious confines elsewhere. But most markets will continue to be hampered by a lack of supply to meet the housing demand, which at the very least puts a floor under prices.
To learn more about a potential real estate market crash in 2021, watch our video below:
For a look at housing market crash predictions for a few major markets across the US, check out the following:
- 9 California Housing Market Predictions for 2021
- 2021 Las Vegas Real Estate Market Trends to Expect
- Seattle Housing Market Forecast for 2021
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