Are Housing Prices Going Down in 2021?
Are Housing Prices Going Down in 2021?
I have heard many perspective buyers say they are waiting on the sidelines until prices go down. Or that prices are getting too expensive. It seems that timing the real estate market has become a new national past time…
But is the real estate market really going down in 2021 or heck even 2022?
It’s always important to remember that real estate is local. So, while the national market could continue to see gains, there could be some specific markets where home prices go down due to local issues. In this case we are talking about the National market.
So, will the market go down in 2021 or even 2022?
It’s not going to happen. And there are a multitude of reasons why.
Let’s first start with the imbalance of housing supply to demand. Demand is far outstripping supply. The level of demand will subside. This level of imbalance will not continue. It’s my belief that demand will decrease due to increased interest rates and/or buyer fatigue. But that decrease in demand will not turn into a slump.
Freddie Mac recently stated that the U.S housing market is 3.8 million single-family homes short of what is needed to meet the country’s demand.
Why the shortage? The chief economist at Freddie Mac is quoted as saying “That is what you get when you under build for 10 years”.
So, what does this have to do with prices? Even if demand subsides a bit, we will continue to see an imbalance in the supply and demand curve for housing due to underbuilding.
It’s true, we are building more houses. Last year single family home starts rose to 991,000 units. Which isn’t bad. That is actually the highest rate since 2007. But in order for home builders to meet long term demand, they need to be constructing between 1.1 and 1.2 million single family homes a year.
So, the question becomes, why aren’t we building more? Building a house takes time with approvals as well as the labor and financial capital. A shortage is not something the market can quickly correct. And the supply chain issues post Covid are not helping any…
So. Are home prices going down in 2021. Not a chance. Will we see a correction in 2022. Not a chance. Home price gains may slow, but this decrease in demand could be at the expense of higher interest rates.
Figure this, for every 1% interest rates go up, you and I as a home buyer lose 10% of our buying power. So, if we can afford the payment on a $500,000 house today at a 3% interest rate, then that same payment at 4% is only going to buy us a $450,000 house. OUCH.
Because it is a recent memory, people think the housing correction that we saw in 2008 is a normal occurrence and will happen again. Don’t get me wrong, it will happen again, but historically speaking not in our lifetime. That triple AAA credit event is considered a once in a lifetime occurrence with the last one being the Great Depression. Consider this. In the last 6 recessions, home prices have only gone down twice. We all know what happened in 2008. The other correction was 1.9% and that was during the 1991 recession… A decrease in home prices and recessions are not necessarily correlated.
I think it is also important to note that in 2008, it was a HOUSING caused recession. Fueled by low mortgage standards and over supply. Two things we do not have today.
Another factor that people aren’t talking about is inflation… The price of EVERYTHING is going up. From our consumer goods to food and energy… Inflation is here. It’s only natural if everything else is getting more expensive… That housing will too.
So, is now a good time to buy? Yes. Real Estate is always a great investment when you buy over a long time period. In a recent video when we compared Real Estate to the Stock Market Return on Investment from 2000 to the end of 2019… It wasn’t even close. You should watch that video if you haven’t already seen it! That is if you are interested in a 1,072% return on your money…
To recap, are housing prices going down anytime soon? Nope. Sitting on the sidelines could really cost you.