Welcome to 2021. May this year bring the end of the pandemic, physical/mental/emotional healing, and full classrooms.
Looking back at 2020, no one expected residential real estate to be the sector to save our economy. The years of underbuilding came to a head as demand increased fueled by record-low mortgage interest rates. Existing homes appreciated by 17% in Greater Phoenix.
Looking forward, 2021 looks like it will shape up to be another very strong year for housing.
Just before the November election I wrote about politics and housing and discussed how markets are the strongest with a split Congress. Click here for that post. With the Georgia run-off results, we no longer have a split Congress, what does that mean for real estate?
Real estate responds to policy, not to the controlling party. However, given that Congress and the White House will all be on the same side of the aisle, it will be easier for President-elect Biden to push through his proposed policies. While this is the case, both the house and the Senate majorities have TINY majorities. In the house, in order to have the majority, a party needs to have at least 218 seats. Currently, House Democrats have 222 seats, the smallest majority in over 20 years. The Senate is 50/50 plus the Vice President’s deciding vote. Since all of Congress is nearly evenly split it is unlikely super progressive policy will pass. Experts believe we will see more centrist voting.
One thing that does bode well for housing is that it is very bi-partisan, both sides of the aisle support housing initiatives.
As part of his campaign promises, President-elect Biden has two proposed policies that directly impact real estate.
The first is getting rid of 1031 exchanges altogether. The 2017 Tax Cuts and Jobs Act eliminated all 1031 exchanges outside of real estate. Previously you could do a 1031 on anything from airplanes to artwork. Now the proposal is to cut the 100-year-old tax law completely. The additional tax revenue would then be slated for free pre-kindergarten and senior care. This impacts both commercial and residential real estate. This is very unpopular in commercial real estate. Experts are afraid that it will significantly decrease the number of transactions each year. NAR opposes this.
The second proposed policy is a $15,000 first time home buyer tax credit that buyers will be able to use as part of their down payment. Lawmakers and politicians are trying to help first-time homebuyers compete in quickly appreciating markets but they do not understand real estate enough to know what kind of impact that will have on the markets. Creating more demand in an already tight market will only drive prices up further and faster. NAR supports this.
There is also the question of mortgage regulation. The Biden administration is appointing new leadership for many agencies including the CFPB. Under the Obama administration, the CFPB was heavy into policing and fining financial institutions, like mortgage lenders and title companies. And under the Trump administration, much of the CFPB’s regulatory power was stripped. What it will look like under the Biden administration is still unknown.
National Real Estate:
- Nationwide, available single-family homes dropped down to 419,000 as of Monday. That is 60% below normal. (Altos)
- In late December a second stimulus package was signed by President Trump. In this recent post, I discuss the stimulus’s impact on housing.
- Headlines continue mentioning month over month sales declines at the end of 2020 while they exclude the 26% year over year sales increase in existing home sales through November. Inventory shortages are the primary culprit. Buyers cannot buy houses that are not for sale. (NAR)
Mohtashami explains economics as housing demographics and the recent years have set the stage for an incredibly strong housing market from 2020 through 2024 due to the roughly 32 million Millennials aged 27-33; prime home-buying age. Not only is the Millennial generation the largest, but it is also the most highly educated generation. Not all 32 million will be buyers but First American estimates that 15 million of them will buy homes in the next 10 years. These are what Mohtashami calls replacement buyers, keeping the demand high and inventory low for years to come.
Lending & Forbearance:
After hitting all-time lows 16 times in 2020, mortgage rates did it again yesterday, hitting a new all-time low of 2.65% for a 30 year fixed mortgage. Despite the newest low, the chief economists of Freddie Mac and MBA both expect rates to move closer to 3% throughout the year. (Freddie Mac)
In a recent article, Tim Glaze with HousingWire said, “Consider the state of mortgage rates over the last 40 years: In the 1980s, Len Kiefer of Freddie Mac noted, 30-year mortgage rates averaged 12%; in the 1990s, they averaged 8%; in the 2000s, they averaged 6%; and in the 2010s, rates averaged around 4%.”
Frank Nothaft, Chief Economist for CoreLogic said, “The housing industry is the most interest-rate sensitive sector in the economy. When mortgage rates are low, they drive buyer demand and owner refinance, fueling home sales and home purchase and refi originations. We expect home sales in 2021 to be more than in 2020. In fact, we expect home sales relative to the housing stock, a measure of home ‘turnover’, in 2021 to be above the average annual turnover rate of the prior two decades.”
Forbearance info changes regularly. This post from Wednesday includes the most recent forbearance numbers and exits. The bottom line is that 13% of the forbearance exits, leave without a loss mitigation plan in place. (MBA)
The AZ Market:
- Join us on Zoom next Thursday as Tina Tamboer with the Cromford Report does a market update all about Greater Phoenix. Click here for details and registration.
- Inventory is very low; 70.6% below normal and 53% below this time last year.
- Demand remains high. It is 31% above normal, a year ago it was 2.4% above normal.
- We have just over 4 buyers for every listing available on the market.
- The preliminary census numbers are showing that AZ has had about 1 million people move here from 2010-2020. This could entitle us to another seat in Congress. California had its first-ever drop in population. The counties that drive the largest relocation to AZ is LA County and San Diego County. The full Census data should be released in March.
- Valley new home permits are up 16% year over year. (Home Builders Association of Central Arizona)
Real Estate News:
- PLS, formerly The Pocket Listing Service, rebranded and relaunched as The Property Listing Service after altering its business to fit within the Clear Cooperation Policy and now shows exclusive listings to the public. (Inman)
- CoStar purchased the URL houses.com, furthering its entry as a real estate portal with intentions to compete with Zillow. This came shortly after the FTC approved the $250 million acquisition of Homesnap. (Inman)
- RedfinNow, Redfin’s iBuyer launched in Phoenix this month. Before Opendoor went public RedfinNow referred iBuyer business to Opendoor in markets where RedfinNow did not have a presence. It seems as though that referral partnership is no longer. (HousingWire)
Continue being the voice of reason for scared sellers and nervous buyers. Use your market knowledge to bring value and confidence to your clients. And let’s continue being part of the solution.
Please share this with your colleagues and clients.
Copyright 2020 by Sarah Perkins
Sarah has been in title & escrow sales since 2004. As an award-winning sales executive and now the Director of Strategic Accounts, Sarah’s role is to bring real estate transactions to Clear Title. To do this, she focuses on supporting her clients and helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today’s home buyers and sellers.