2020 End of Year Housing Outlook

Posted on Dec 11, 2020


Each month, we are posting an updated Market Outlook based on the questions we continue to receive from clients, employees, and investors about the implications for the housing and mortgage markets in which we are active (read October's Outlook here).

A lot has transpired since our previous Outlook: a presidential election, another surge of the Coronavirus, and positive news regarding Coronavirus vaccines. In the housing market, demand remains extraordinarily strong relative to supply, but a trickle of foreclosures have started to roll in in some states where moratoriums have ended.

Housing

Despite everything happening in the world, one constant has been the unrelenting seller’s market across all of our markets:

  • Median home prices in Greater Philadelphia are up 16.7% vs. this time last year, and holding steady around 1.4 months of inventory.
  • Median home prices in Greater Washington, DC are up 11.1% vs. this time last year and supply has ticked up slightly to (a still paltry) 1.1 months of inventory.
  • Median home prices in Greater Baltimore are up 14.8% vs. this time last year and supply remains quite low at 1.1 months of inventory.
  • Median home prices in Greater Orlando are up 13.2% vs. this time last year and supply is at 1.6 months of inventory.

Even though they are a Houwzer competitor, we really like how Redfin CEO Glenn Kelman described the current state of the housing market on their Q3 earnings call: 

When I was a kid, the scariest movie I ever saw was The Thing. It was about a monster that killed people in an Arctic research station and then impersonated them. The only way you could identify the monster was by testing a small blood sample with a probe, at which point the blood exploded, and Kurt Russell blasted another one of his colleagues with a flamethrower. This analogy makes no sense, except the images of the exploding blood and the flame thrower are what always come to mind when people ask me about today's housing market.

Despite the continued low inventory and increasing prices, some cracks are starting to show. Foreclosures for non-federally backed loans in Pennsylvania and Florida have resumed and foreclosures have jumped substantially since the end of the moratoriums. There’s not enough data yet to say whether this is a clearing of a backlog due to state-level moratoriums that recently expired in both of these states, or the beginning of a wave of foreclosures. 

In Virginia, where non-federally backed loans never had a state-level foreclosure moratorium, there has been a slow increase in foreclosures since a dramatic dip at the beginning of the pandemic due to the continuing moratorium on foreclosures for federally backed loans.

In all markets foreclosures are way down from the previous year due to the foreclosure moratorium for federally-backed loans, which are estimated to account for 70% of loans nationally.

It is likely that when this federal moratorium ends, there will be a flurry of foreclosure activity that will introduce supply into the housing market. Given how high demand currently it is, this supply is likely to be absorbed quickly by still-ravenous buyers but it may provide a headwind for the rapid home price appreciation that we’ve seen in 2020.

Mortgage

After ticking up in October, 30-year fixed rate mortgages are back down to an average of around 2.9% which is only slightly higher than the all time lows of 2.8% set earlier this year. These extremely low rates continue to create extremely favorable conditions for borrowers.

If you’re planning to sell and also need to buy, now is also a good time to do so because you have two out of three major factors working in your favor: a strong seller’s market and low interest rates. The one factor working against you is that it’s tough to be a buyer in this hyper-competitive market, but it’s better than the alternative scenario of having a home to sell that you can’t unload blocking you from purchasing your next home. Though more difficult, it is still possible to find quality homes in a low inventory market.

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