Will There Be A Housing Crash In 2021?

Certified Mortgage Advisor
NMLS 1701021
November 9, 2020

2020 and Our Crazy Market

As if 2020 hasn't been crazy enough. There's now talk about a housing crash in 2021. So let's discuss some of the factors that are going in here so we can figure out is there actually going to be a housing crash coming up in this upcoming year?

Will there be a housing crash in 2021?

So I'm not going to spit a bunch of numbers at you, so you can then try to figure them out. There are tons of other videos and articles that go into really in-depth mathematics and statistics about the economy and what could happen. Everything is based on opinion. Nobody actually knows the answer. Everybody's taking an educated guess. So what I want to do is talk with you through the major factors here, so you can decide what's going to be best for you moving forward.

Inflated prices

So let's talk about the current environment first. Right now we have inflated home prices are at home prices. Skyrocketing compared to where incomes are at. And that's been trending over the past 60 years.

Low interest rates

We also have low-interest rates and these are being kept low by the government. There, they're doing things to keep make sure that investors want to put money into the market. So they're keeping interest rates low.

Low inventory

Then there's also low inventory. There are not a lot of homes available. So supply and demand make sure that those home prices are high when there's low demand.

Uncertainty will lead to more renting

With COVID, we're also seeing uncertainty potentially leading towards more renting here in the future, as people are having income instability with the potential of losing their jobs or a loss of income.

Forbearance ending

And one of the biggest things that we're seeing is for parents coming to an end. So if your parents were on a six-month plan, you could then extend it another six months, but we're seeing people reaching the end of their forbearance. And this is going to become an issue. If there isn't a plan in place. By the government, or if there isn't any more liberal relief from COVID. So we're in this really strange environment where a lot of people are anticipating a housing crash.

Credible Operations

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Crash or Correction?

But first of all, is there a crash or a correction? See, a lot of people are throwing out the word crash very loosely. And the crash I don't believe is what's going to happen in 2021.

In 2021, I believe there will be a pricing correction. Now, these are wildly different. A crash is like an actual financial crisis. A correction is normal in markets. All markets have phases where they go up and they go down and they go up and they go down. They go up and they go down these spots where they go down. These are not called crashes. These are called corrections. All markets are cyclical, stock markets, and mortgage markets. They all go up and they go down a crash means we have an underlying financial problem.

2008: Profiteering off of bad/predatory loans

So if we talk about 2008, that's what most people think about when they think about the housing crash and people keep saying 2021 housing crash. That's not fair because where we're at right now is nothing similar to what was happening in 2008. You had profiteering people profiteering off of bad and predatory mortgage loans. That's what caused a financial crash. The underlying foundation was eroded and everything came tumbling down.

We have right now in 2020. Is it we're in a recession, but it doesn't mean that we're going to experience a housing crash right now. Mortgages are still very sturdy as securities they're written and underwritten extremely well. And the standards are very tight, especially with COVID. Those standards have become even tighter.

Let's hope price correction

In 2008, those loans were basically worth nothing.  Most of them were not underwritten well or to correct guidelines. Now we have very strong loans. So the debt that these properties are securing is strong. So I don't anticipate an actual crash. That's going to cripple the economy. What I do expect is a price correction. We're seeing home prices, inflated above what the average person can afford. That means eventually we're going to expect prices to come back down.

Potential for forbearance continuance

Now, what could change here? The hard thing that's difficult to predict is there is a potential forbearance continuance. Right now, it's only for 12 months total, but it's very possible that government could come out and extend what the cares act has and push forbearance even further in the future, because if they don't, then people are going to, we're going to see delinquencies on mortgages and people not being able to pay. So that's something that can happen.

Projected Administration promised to handle COVID differently

Also with a projected Biden administration coming in as president-elect, they promise that they're going to handle COVID differently than the current administration. Now, if that's true, then we could see things become different based on how they choose to stimulate the economy, how they choose to relieve workers and unemployment, and how they choose to.

Rent and for rent and mortgage and how they allow renters and homeowners to have some relief with those payments that could be different than what we're currently seeing right now. And that would change what would happen with this pricing correction as well.

Why I rent?

Now really quickly, I wanna explain to you why I rent. So I'm a mortgage broker, but I rent right now. I'll explain two and a half years ago, I started as a mortgage broker.  In February, I hit the two year mark. Now, if you're familiar with mortgage guidelines a mortgage broker is a hundred percent commission income. So I had to wait two years before I was able to purchase them.

So in February, I started looking for a home and home prices were already more than I was wanting to spend. I think I looked at maybe 12 to 15 houses and they were all overpriced for what I saw. I didn't want to pay an extra $20,000 on a house, around here homes are like 120 or 150. So an extra $20,000 in price is pretty significant, and that was in February and we've been seeing home prices continue to increase all the way until now which is at the beginning of November.

It's okay to wait

Just know that if you're waiting for a correction, that's perfectly okay because that's where I'm at too. I started in the beginning by saying, you know what? I think I'm going to wait because I anticipated correction happening. I'd rather purchase when there's a discount than purchase at the height of the market. And then being stuck in that home because prices then drop and I can't sell the home if I need it.

So ultimately, if you're in that spot where you're thinking I want to buy, but hearing all this talk about a crash or correction, I personally believe there will be a housing correction happening in 2021 or 2022. All that means is we'll see home prices, dip back down and inventory will increase. It doesn't mean we're going to have this huge economic collapse. It doesn't mean we're going to have the financial burden problems of 2008. It just means home prices will be, will come back down to be more affordable than they are right now.

Best time to buy is when it's best for you financially

The best thing to do is to figure out where you're at financially and to have a strong foundation of finances before you look at purchasing a home because the best time to purchase a home is first when you're ready financially, which means paying off high-interest debt. You have savings ready. You have your down payment and closing costs ready to be paid for. Then you can start exploring a home.

It's always you decision

If you find a home that you love right now. It's worth what you'd pay for it. Go for it. You don't have to wait and miss out on a home that you really love. But if you have the patience or if you need to work on your finances a little bit more, it absolutely might be worth waiting because I anticipate a correction in 2021, maybe into 2022.

Internet is just a guide, nobody can predict the future

Again don't base your actions just based off of one person's opinion on the internet. Everything that you're going to hear about the market is 100%, a hundred percent speculation, no matter how much data and numbers are being thrown at you, it's all opinion.

Nobody can predict the future

All we can do is make the best guess possible. So if you want to learn more about why homes are overpriced and why it's becoming increasingly difficult to afford homes, check out this video over here, it's going to help give you some relief and understanding of this crazy market.

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