NORTH BY COLORADO MEDIA GROUP - JUN/JUL 2022 EDITION

MarquesaHobbs Realtor® CNE & MRP ERA Shields’ Top Producer & Listing Agent ::: 719.238.0330 - MHobbs@ColoradoHearthstone.com ::: ColoradoHearthstone.com

Do I have a Relevant Housing Market Opinion Based on Facts or Headlines?

Why we’re not heading for a housing bubble.

By Marquesa Hobbs, Realtor CNE & MRP

If you listen to economic news, you’ve heard inferences to a housing bubble. However, key variables in the real estate industry suggest otherwise, even in the face of a struggling economy and rising interest rates. Experts who analyze this space continually have several key indications that our overall housing market is poised to continue gaining value, not crashing. It’s a combination of having learned some painful lessons from the housing crash of 2008, better home equity management, and a broader historical perspective.

-92% of the people that entered forbearance have come out – Source: Black Knight

Those that have come out as of March 31st: 37% are paid in full. Another 44.6% worked with their bank either a modification, rate and term refinance, or a deferral. Four out of five people either went through a modification or paid it off in in full. Noted: 18% have no loss mitigation plan or they’re already into a loss mitigation plan.

Still, this is not going to factor into a crash because people have options today. For many affected by the pandemic, they can sell their home with appreciation, pay fees and still have money to put away.

Lending standards not like the early 2000s

Since the start of the modern housing boom of 1945, there’s been one time where homes lost significant value: 2008. This occurred for two reasons:

1. Loose lending standards: No income or job verification required

2. Cash-out refinances: People used their home equity as an ATM

It was a cash-out free-for-all, and it ended poorly.

What about COVID and forbearance - the tool use to weather the pandemic for housing payments? The forbearance numbers continue to edge downward as of April. There are 690,000 loans in forbearance-well below where we started out of May 2020 (4.76B). What’s happening to those coming out of forbearance?

“We’ve learned from history the prices can fall. The important question now if that’s going to happen right now and it’s hard to say.”

Daniel Hale, Chief Economist, Realtor.com

Product risk and Borrower risk:

• Red are types of loans available to people - virtually eliminated. From 1999 to 2021 you see that red portion it’s gone. The loans available back then are not available today.

• The orange is borrower risk. Asset profile, credit score all the things it takes to qualify for a loan of those have been severely curtailed. It’s harder to qualify for a loan since the crisis. Lessons learned!

Proof: The foreclosure market is at an all-time low. Tighter lending standards led to fewer foreclosures, even with the pandemic moratorium factored in. Pretty simple: If you have a highly qualified/better

qualified borrower = less defaults; hence, that will not play into a crash.

Next, mortgage debt is not the challenge. This is the total mortgage payments divided by the total disposable personal income. We are lower today than during the financial crisis. That’s a component of rising wages, of interest rates, etc. People holding mortgages today are much better position than during the housing crisis of ’08.

Homeowners are behaving differently toward their home loans too:

• Paying down mortgage

• More money down

• Not cashing out equityIt’s in the numbers – 2006 vs. 2021:

• 2006-08 refi: The difference between the old versus new payment after the cash out refinance on an annualized basis between ’06 and ‘08 it was $3K to $4K difference in payment.

• In 2020 and 2021 refi: $66 and $34. That speaks to low interest rates we’ve seen, and to people not refinancing and harvesting the equity from their home.

“Are our homes going to lose value later in the year? Experts say “No” for 2022.

Recently updated home price forecast from seven forecasters shows about 9% appreciation. (slide). 2022 started around 5% appreciation and have risen slowly. Beyond 2022, expect a “normal rate” of appreciation – on par with pre-pandemic averages, which were about 3.8%. Forecasters suggest we’ll be back to those norms for the next four years.

A cumulative price appreciation by 2026 shows an average of 26.8% factoring in both the perspectives of optimists and pessimists who are 46.5% and 10.3% respectively. Even if you’re skeptical about the forthcoming market, we’re still on the plus side by 10%.

If you’re of the “I’m going sit on the sidelines and wait for prices to drop” mindset, these forecasts don’t suggest that is going to happen in the next four years.

• Rates: We started the year about 3.1% right now we’re just over 5.25% on the average 30 year fixed.

“Based on the current estimate for the peak Fed funds rate somewhere between 3.25% and 4%, a 30-year fixed mortgage will likely peak between 5% and 5.7%. There’s some variability in relationships, so rates may creep into the low 6s depending on inflation and the Fed funds rate.” -- Bill McBride

• Inflation is the enemy of long-term interest rates. The fed’s action is to tame inflation so we’re going to watch that, but you know Bill McBride suggests: the high side of this is in the 6s.

Where affordability is right now and what it means for the housing market going forward.

84% of Americans plan to cut back spending because of price spikes. 70% of respondents said they’re feeling the effects of inflation, re: gas prices, groceries. – Harris Poll

For prospective home buyers (especially first-time home buyers), inflation brings affordability into the equation.

• January 2021: Loan amount of $300K principal and interest had a typical payment around $1,200

• Today: Same loan amount at 5.25% is a payment of $1,700

That $500 could be the difference with this uncertainty for when inflation costs and rates will level out.

At the same time, affordability is approaching more historical levels. In summary, the higher the bar the more affordable homes are. Today, we’re at 135.4 (NAR’s Index). Clearly, not as affordable as they were over the past 10 or 12 years, and certainly not like 2008-16 – the orange bars, during the housing crisis. That’s period is when distressed properties dominated the market, and homes sold at massive discounts. As prices and mortgage rates rise, homes are not as affordable as they were. Affordability is a measure of three key things:

1. Prices

2. Mortgage rates

3. Wages

All three of these variables are ticking up. Until this year, mortgage rates offset rising prices. Today, inflation has nearly eliminated that offset, hence affordability strain. Still, going back to 1990, we can see is that homes are more affordable than anytime leading up to the housing crisis. (slide)

The average consumer spends +$429/month for items other than shelter. The average weekly wages only rose $212/mon., leaving consumers short $217/mon. This is a direct result of inflation and other influencers. Hence, the average consumer is looking at homes priced $41,793 less. They must reduce their price point to maintain the same financial balance from a year ago.

We know rising mortgage rates will have some impact behavior. Folks are either going to jump in “to get ahead rising rates and prices”, or they’re going to say, “This isn’t for me”.

Demand: Buyer demand is still strong and will not impact the overall demand seen today. There are still more buyers in the market than homes for sale. The needs-buyer demand is very real. Yes, it will put pressure on that lower price point buyer, but demand is still strong.

What to do? Getting ahead of rising rates rising prices and thinking about long term net worth development and growth future of buying a home now. This is a market that requires skill and thoughtful consideration. Do we have a relevant market opinion based upon facts, or just speculation?

There are so many media headlines, concerns, and fears out there. Learn to navigate this with a realtor who can decipher the data that incites the facts that backup your relevant market opinion.

About Marquesa Hobbs

• Top producing agent at ERA Shields for 2021

• MRP, CNE, Peak Producers, ERA Leader's Circle

Please reach out with questions about the market, your home value, orfor a tour of the new communities.

To see this and other great Business, Real Estate & People articles from NORTH, go to: https://coloradomediagroup.com/magazines/