The Boston2.com Real Estate Blog

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...

MOST CURRENT BEACON HILL BROWNSTONES FOR SALE

Don’t Get Pre-Approved by These Companies

The Bank that you get pre-approved with matters.

We recently had a client that got pre-approved with a not to be named internet bank. She started the pre-approval process before we had initially talked. She found a home that she loved and extended a very competitive offer that was far over asking price. It turns out another offer was close and she ultimately lost out… The swaying factor, the bank on her pre-approval.

So why do these banks have such a negative perception? For many reasons… And some are deserved. Some are reputations of a long time ago that are still haunting them. Some might not even be deserved, but that doesn’t matter. Perception is reality.

One of these banks that have a negative reputation provided a loan commitment and told the buyer she was all set to close. But two days before closing they called the soon to be home buyer saying that in final underwriting there was an issue and she needed to bring an additional $20,000 to the closing table. $20,000 is a lot… Let alone 2 days before closing. And them doing this after the mortgage commitment meant that she would lose her deposit. CRAZY

Another bank that you should not get a pre-approval from is known for their delays in underwriting and having to push out closing beyond planned closing dates.

Another Bank is known for their quick pre-approval. And their pre-approvals in the industry are known to be worth less than the TP you wipe your backside with.

We recently had a local Mortgage Broker who disappeared during the loan process. Promised the moon. Let the loan commitment lapse. When it came down to bras tax, they still did not deliver on their promises. Their inability to perform cost that mortgage broker $2,500 and cost our client nearly their entire deposit....

You Are an Idiot if You Don’t Buy a House

The Real Estate vs. Stock Market Return on Investment

Historically, over the long run your ROI on your house will be higher than the Stock Market. Plus owning a house has one more BIG advantage… YOU can’t live in Stock Certificates.

Let’s take a look at the average return of the Stock Market for the last 20 years…

(Hyperventilating in a bag) Look at all those swings. Up and down. Up and down. With swings like that, make sure to keep your therapist on speed dial!

The average return from 2000 to 2019 was 7.68% for the S&P 500.

So, $50,000 invested in the year 2000 would have been worth $162,066 at the end of 2020.

THAT’S NOT BAD! That is a respectable return! And if you already own a home, then I think everyone would agree that it is smart to diversify…

But that’s not what we are talking about here. We are talking about the people who rent because they think they are better off financially…

Let’s look at the Home price appreciation over the same time period.

From 2000 to 2020, we have seen a Median Appreciation Rate of 3.85% for homes throughout the United States.

Please do keep in mind that this will vary from Market to Market. For instance in Boston we have seen a 10.5% increase from $222,000 to $690,000 in that same time period.

But let’s stick with this average 3.85% yearly return figure to show why investing in the stock market over buying a personal resistance that you can reside in is dumb.

It’s important to realize that a house appreciates off of the full asset value. Not how much you put down as a down payment. This is one of the major differences between stocks and real estate. Stocks you have to pay for the entire position up front. Real Estate you can...

What Happens if Appraisal Comes in High?

So what happens when an appraisal comes in higher?

Essentially nothing. It's a good thing in essentially the buyer has already created equity in the property, but it doesn't really impact the deal.

It doesn't effect the financing because a bank will take the lower of the appraised upon value or the agreed upon price.

Questions people sometimes ask and that we answer:
With the higher appraisal, do I get extra money or can I finance more?
Does the seller find out about the higher appraisal?
Can the seller charge me more?

Transcript of Conversation:

- What happens when an appraisal comes in higher? Hi, I'm Jeff Chubb with the eXp Realty and we're here with Jason Bonarrigo of RMS Mortgage talking to you about what happens when that appraisal comes in higher and make sure you stick around to find out at the end of the video what we're doing with a thousand dollars. So, Jason, tell me first off, what is an appraisal?

- Well, an appraisal is a way that the lenders essentially certify the market value of the property. We don't always put in exact numbers of the purchase and sale. So we have an independent third-party go out there and see what the market analysis is.

- Okay. So we get the appraisal. So comes back, what happens if that appraisal, that third-party opinion of the value, actually comes in higher than agreed upon price?

- So let's just say agreed upon price is 500,000

- mhmm

- and that appraisal comes back 520.

- Yeah. Nothing. No, I mean, essentially it doesn't really impact, it's certainly not a negative thing for the buyer.

- Right. Good thing

- it's a good thing. They, you know, essentially tactically could have picked up maybe 20 grand in equity.

- A hypothetical...

What Happens If Appraisal Comes in Low?

Is the deal completely dead if the value of an appraisal comes in below the agreed upon price?

No, it’s not dead. There are still some options and ways to keep the deal alive.

The first option is for the seller to agree to reduce the price of the agreement to the appraised price.

This is the simplest avenue, but not all sellers are agreeable. We see sellers become even less agreeable in hot seller markets.

The second option is for the buyer to make up the appraisal difference.

A buyer could make up the difference by bringing additional funds to closing, but can sometimes also be able to adjust the percentage the buyer is putting down without requiring them to bring additional funds to closing.

The third option is a mix between the two where the seller agrees to reduce the sales price and the buyer brings additional funds to closing. As an example, if there was a $20,000 difference between the agreed upon value and the appraisal then the seller would agree to reduce the price by $10,000 while the buyer brought an additional $10,000 to closing.

The fourth option is terminating the deal and all parties moving on. If this is the case and the buyer had a mortgage contingency and all dates were met in the mortgage contingency then the buyer would (most likely) get their deposit back.

Transcript of Conversation:
- What happens when an appraisal comes in below agreed-upon value? Hi, I'm Jeff Chubb with EXP Realty. We're here with Jason Bonarrigo of RMS mortgage and make sure that you stick around...

What is An Appraisal?

An Appraisal is an independent 3^rd party professional that certifies the value of a property.

An appraiser does this valuation to ensure that the market value and the agreed upon purchase price match.

The lender orders the appraisal; however, they do not do it. It is an independent party that is not tied to the buyer, seller or lender.

The bank will pay for the appraisal up front; however, they will collect this fee from the buyer eventually.

The point of the appraisal is to make sure that the deal is above board and that the buyer is not over paying for the property. These appraisals can create issues; however, they are in the best interest of not only the bank, but the buyer as well.

The appraisal is a way to qualify the real property if you will.

The bank secures the mortgage against the asset (the house). The bank needs to know that should a buyer not be able to pay back the loan, that the asset will be able to cover the loss.

An appraisal will look at comparable houses within a one-to-two-mile radius. They specifically look for recent sales within the last 6 months. There are exceptions that can be made in more rural areas where there are no recent sales.

The appraisal happens once the Purchase & Sale Agreement has been signed.

There can be appraisal delays based on how busy the marketplace is. Generally, this should not be an issue that holds up closing, but can hold up the mortgage commitment.

Other Blogs & Videos May Interest You:
What Happens if Appraisal Comes in Low
What Happens if Appraisal...

BUYING A HOUSE WITHOUT SAVING FOR A DEPOSIT

Haven’t saved for a down payment to buy a house? Or need a little more in order to make your dream of buying a home possible? You may still have options.

Don’t be sidelined from the real estate market continuing to stash small amounts away in the form of savings for a down payment.

You have options of receiving a Gift or borrowing against your 401k.

A buyer can receive a gift from a person that the buyer has a strong relationship with (this is for most programs). Gifts are not acceptable for all programs so this is something that you would want to reach out to a mortgage banker to discuss more with.

A gift of cash (actual dollar bills!) can difficult the gift process. This is an example where the funds would need to be seasoned.

In most cases a buyer can pull from their 401k. This is something where the buyer will want to check with their provider or HR department to see what the plan offers. A lot of times this is an interest free loan that is in most cases have no tax implications.

Saving 20% for a down payment is near impossible for a lot of first-time home buyers… Especially those located in expensive markets! It’s important to know that you always have options!

Transcript of Video:

- Can I still buy a house without saving for a down payment? Hi, I'm Jeff Chubb. We got Jason Bonarrigo here today. Today we're talking about down payment options with 401ks and gifts. And be sure you stick to the end of the video in order to figure out what we're gonna do with this thousand dollars with your help. So Jason, do I have to save for a down payment in the traditional sense? Do I have other options?

- You always have options. A lot of times clients don't know that,...