Hi, I’m Warren Oberholser. I’m a realtor in the East Bay Tri-Valley area in Northern California. My goal is to help both buyers and sellers get maximum results for one of their biggest investments, their home.
With the recent overturn on the eviction moratorium by the Supreme Court, loan forbearance soon to expire, and the housing market’s starting to flatten, are we facing a housing bubble or is this a good time to buy?
In this BLOG, I’m going to discuss what’s going on currently in our national real estate market and what effect the current overturn on eviction moratorium and soon to expire loan forbearance will have. I will also address house price flattening and the effect all of this can have on our real estate market. And of course, what’s on everybody’s mind, are we in a housing bubble and is the market on the verge of collapsing like in 2008?
Now, make sure you read my blog to the end because I’m going to address what I think is the number one wild card that can drastically change or shut down the housing market by creating a housing bubble.
Let’s first address what drives the real estate market.
- 1 Supply and demand The more supply tends to reduce value and less supply increases value.
- 2 Financing For the National Association of Realtors, 75% of all real estate transactions are financed. So these are the two main driving forces for residential real estate. Presently, we have record low interest rates and high values in the stock market, making money quite available. Regarding inventory, as we painfully know, we have low inventory and this creates high demand.
I’m now going to address what effect these current events can have on our residential real estate market.
Let’s start with the Supreme Court overturning the eviction moratorium. As on Thursday, August 19, the Supreme Court overturned the Biden administration and CDC’s eviction moratorium. Understand there are still some states like California and New Jersey that still have a moratorium in effect on evictions. California expires the end of September and New Jersey expires next year in January. By the way, local county and city moratoriums can supersede the state eviction moratoriums. So if you’re affected by this, whether you’re a landlord or a tenant, it’s best to be properly advised before you move forward.
Okay, now for those states who no longer have the eviction moratorium in place, what effect will this have on residential real estate? It is hard to predict what a landlord will do. For Zumper, rents have gone up nationally between 9% and 11% for 2020. If the landlord has a mortgage on their property and they’re able to take advantage of these low interest rates and lower the rate by a point or two, then they could increase their monthly net gains by 15% and more by just refinancing and re-renting their property at the current rates. Of course, the landlord may choose to just take advantage of the current sellers market, fix the property up, and hopefully get top dollar when it sells.
Loan forbearance. This is a hard one to measure. According to Black Knight Financial Services, it appears the number of homeowners who went into forbearance was as high as 4.5 million, but has now been reduced to less than half of that. There are several reasons for this.
- 1 Homeowners who did take advantage of loan forbearance were never late on their mortgage. In other words, they paid their mortgage regularly, or put aside that money in the event they need it in case of an emergency. So the money they put aside, they just applied it all at one time.
- 2 The banks are extremely proactive with homeowners offering several types of loan modifications.
- 3 The homeowners who did need to sell their home had enough equity to sell their property without going into a short sale.
- 4 REOs, the properties that were taken back by the bank were a very small number. The bottom line on loan forbearance, like evictions, this won’t add much to our housing inventory.
At this point, I want to compare the subprime 2008 housing bubble crisis to our current real estate market. If you’ve ever watched the movie The Big Short, you know that 2008 mortgage housing bubble crisis was… To put it lightly, it’s complicated. To help you understand the difference between our current real estate market and what did happen in 2008 (subprime mortgage crisis creating the larges housing bubble in recorded time), I’m going to share with you some specific numbers.
In the 2008 housing bubble, it was estimated that 10 million Americans lost their home through foreclosure, trustee sale auctions, and short sales. If you compare that number to just 1.5 or 2 million who are still in forbearance, this is a huge difference.
Furthermore, today’s bank is eager to help stressed homeowners with offering various types of loan modifications, especially with the federally-backed loan to the CARES Act. 10 years ago, the majority of banks wouldn’t even consider a loan modification. The two main options were short sales and foreclosing on the property.
Another big difference is the borrower. In other words, the homeowner who has a mortgage. A majority of home loans in the 2008 ‘housing bubble crisis’ were made up of stated income mortgages. This means the lender did not verify the buyer’s income. After the housing bubble crisis, buyers must show proof of income. This would include verifying their W-2, 1099, and tax returns. This equals better qualified homeowners.
What about new construction? According to the National Association of Realtors, new construction stats nationally has been down for over the last 20 years. Their chief economist, Lawrence Yun, states, “growth in America’s housing inventory has slowed significantly since the turn of the century, particularly over the past decade. This trend affects every region of the country creating what the National Association of Realtors calls the underbuilding gap of 5.5 to 6.8 million housing units since 2001“. This has been especially felt in states like California. California has been behind the building curve for over 30 years. To understand more about this, please see the BLOG/video I posted on this.
Okay, let’s now talk about our present real estate market. According to the National Association of Realtors, pending sales in July waned 1.8%. Compared to June, only the west saw contract signings increase in July. The Northeast experienced the largest monthly and year-to-year decreases. All regions recorded year over year declines dropping 8.5% nationally. The market may be starting to cool slightly, but at the moment, there is not enough supply to match demand from the would be buyers.
That said, inventory is slowly increasing and home shoppers should start to see more options in the coming months. Homes listed for sale are still garnering great interest, but the multiple frenzy offers sometimes double digit bids on one property have dissipated in some regions. Even in this calmer market, a potential number of buyers are still electing to weigh the appraisal and the inspection contingency.”
I feel this reflects more of a stable real estate market, which is an excited or hot spring as we just had, it comes down in the summer and then more inventory comes on in the fall. Due to nationally low inventory, I don’t see a downward price adjustment, rather, a more balanced market between the seller and buyer. This could reflect property staying on the market a bit longer and hopefully less bidding wars.
#1 cause for 2021 ‘Housing Bubble’
Now, here’s the wildcard that could potentially shake up the real estate market creating a housing bubble for 2021: ‘interest rates’. As we know, interest rates are at record lows. If the rates go up to 3.25 to 3.5, could slow down the market, especially on the higher end homes. However rates go up to 4%+ could significantly increase the housing inventory creating a shift to a buyer’s market creating a housing bubble.
I hope this helps shed some light on our current real estate market and gives you some insight on what to expect for the fall. Please let me know if you have any questions. Warren
Hello…I work with both buyers and sellers in the Tri-Valley area of Northern California. The Tri-Valley is comprised of 6 cities: Pleasanton, Livermore, Dublin, San Ramon, Danville, and Alamo. To better understand what each city has to offer, I have created a Pros and Cons video and BLOG for each – (Pros & Cons for Pleasanton, Pros & Cons for Livermore, Pros & Cons for Dublin, Pros & Cons for San Ramon, Pros & Cons for Danville and Pros & Cons for Alamo). If you are thinking about purchasing or selling a home, please reach out to me by text, phone, or email. If it is convenient, I can schedule a Zoom chat so we can discuss your home goals. Wishing you all the best on your home journey. Cheers!
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