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We Will Not See a Housing Crash Anytime Soon

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Even with the pandemic, we will not see a housing crash anytime soon like we did in 2006-2008. Here’s why:

The U.S. economy started the year off in an expansionary mode. Retail sales were positive year-over-year, job openings were roughly at 7 million and the housing data was outperforming other sectors of the economy. Existing and new home sales hit cycle highs, purchase application data showed steady double-digit year-over-year growth and housing starts had almost 40% year-over-year growth in February.

Then COVID-19 hit.

Housing took a hit with many borrowers going into forbearance on their current mortgages causing cash flow to weaken in the Bond market. Buyers looking to get into the market in 2020 stayed on the sidelines until they saw stability in the markets.

Even though these two things technically hurt the housing economy, rates were at the lowest they have been on record. This caused borrowers who could afford to buy a home or refinance their current mortgage to cash in on the great rates available. This caused many lenders to be inundated with requests while they were changing their systems and regulations because of COVID-19.

Now, as we enter into the summer season and rates continue to trend lower and lower, people are flocking to the housing market for safe haven. Here are some numbers to back up that statement:

  1. The most recent pending home sales were up 44% month to month.
  2. Purchase application of new homes up 54% year-over-year, according to MBA.
  3. Fannie Mae is forecasting $1.9 trillion in home loan refinancing in 2020 with $1.2 trillion in 2021.
  4. Fannie Mae is forecasting $1.24 trillion in home purchase loans in 2020.
  5. Fannie Mae forecasts the 30-year fixed-rate falling to 2.75% this year.

Due to these facts, the housing market continues to shine in an otherwise down economy due to the pandemic induced shutdown. Housing prices do continue to rise as rates continue to be lower and the supply crunch is impacting prices.

As long as purchase application data stays flat to positive on a year-over-year basis, housing will be fine in 2020.