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Is the Housing Crisis Over in America?

January 25, 2023 by Marco Santarelli

Is the Housing Crisis Over in America?

The housing crisis is not over in the U.S. There is a shortage, or housing underproduction, in all corners of the country. The major coastal cities are known for their exorbitant real estate prices, which are driven by zoning restrictions and a scarcity of available housing. According to a new study, these issues are increasingly plaguing once-affordable towns and cities across the United States.

According to an analysis by the housing policy group Up For Growth, more than half of the nation's metropolitan regions had a housing shortage in 2019, a significant increase from one-third of cities in 2012. The country is short 3.8 million homes to meet its housing needs, which is double the number from 2012.

In recent years, rising raw material costs have exacerbated builders' woes, particularly during the pandemic, when lumber prices increased by more than 150%. But, given the large cohort of Millennials entering the housing market, one of the most significant reasons for this shortfall has been the severe underbuilding of entry-level homes, where the majority of the demand exists. Given the significance of this factor, we go into more detail about the entry-level labor shortage below.

According to an analysis published by Freddie Mac, long-term single-family home development declines have caused the housing shortage. Starter homes have decreased much further, exacerbating that trend. Between 1976 and 1979, 418,000 entry-level single-family homes were built annually, accounting for 34% of all new homes built. Mortgage rates rose from 8.9% to 12.7% in the 1980s.

As mortgage rates rose, housing became less affordable, decreasing demand and supply. In the 1980s, the entry-level housing supply dropped by nearly 100,000 units to 314,000 per year. The entry-level percentage of new single-family homes remained at 33%, similar to the late 1970s, showing that entry-level supply fell by the same amount as the entire new construction market.

According to another report published on the housing shortage by Fannie Mae, every city in the country has a housing supply problem, but each city's housing supply problem is quite unique. The research conducted by the firm found out that while the US has a nationwide affordable housing deficit, each state and city's approach to solving it is different, and the tools and techniques utilized to build needed new housing supply must be adjusted.

Tools to increase housing supply are accessible, although less so. Many towns oppose hard choices and reforms to increase housing for low- and moderate-income homeowners and renters. However, without those choices, the economic and social benefits of adequate housing supply will be wasted and the issues caused by its scarcity will deepen.

The housing supply shortage has well-known causes. After the Great Recession, housing development plummeted. The last decade saw the fewest new residences created since the 1960s. 3.8 million housing units were needed in 2019. The pandemic-induced materials and labor scarcity worsened the tendency, as shown by the 2021 rent and home price increases.

Rising mortgage interest rates have already dampened housing demand, particularly for new homes, and an economic recession could reduce demand further. Prices and rentals may stabilize or fall in some markets. The supply crisis will persist, hurting low- and moderate-income families. Fannie Mae ensures affordable housing for low- and moderate-income families by providing mortgage funding.

From 2019 through 2021, Fannie Mae sponsored almost 575,000 affordable units, according to their analysis. Their loans on newly built single-family houses bought by moderate-to-low-income households, funding to preserve affordable multifamily rental housing, and investments in low-income housing tax credits make up the majority of that amount.

If the housing supply is there, we can finance more. Nope. Families everywhere will continue to suffer with high housing costs until communities take concrete action to construct and preserve affordable housing stock where and how it is needed most. Fannie Mae economists Kim Betancourt, Stephen Gardner, and Mark Palim have issued a study report.

The authors compared the housing supply of the 75 largest U.S. urban markets to the housing needs of their residents. The housing supply problem is national, but solving it is local. Most housing-cost-burdened households are not just in coastal metros with high housing expenses. Fresno, Charlotte, and Las Vegas have high housing-cost-burdened household rates. Even smaller cities like El Paso and McAllen, TX, lack affordable housing.

Housing shortages necessitate localized solutions. According to the research paper, affordable multifamily rental units in Dallas and Atlanta could boost housing affordability. Some markets need new single-family houses, while others need to preserve multifamily housing. This analysis, based on 2019 data (the last pre-pandemic year with accessible housing cost burden data), shows that supply and affordability issues have worsened.

Even if home price growth has slowed and inflation and rising interest rates have reduced demand, working people have suffered from the rise in rents and housing prices since 2019. The supply dilemma can only be solved by building more housing and preserving affordable housing. While the economic drivers of housing costs—materials and labor inflation, supply chain disruptions, etc.—may take years to fix, states and municipalities may work with investors, builders, and lenders to make more homes available.

In several of the most cost-burdened states, zoning reform to encourage higher density and multifamily housing near transit and job hubs are working. Another option is to reduce or streamline regulatory barriers that hinder new development, particularly for manufactured houses and smaller starter homes that have all but gone in many large metro areas and made it hard for millions to buy their first home.

Federal low-income housing tax credits have been one of the most successful capital-generating mechanisms for affordable housing production and maintenance for over three decades and should be expanded and reinforced. Helping first-time homeowners and low-income renters could encourage the construction of additional affordable housing in areas of high demand.

Fannie Mae and the thousands of mortgage lenders and investors they work with daily are ready to finance affordable homes. The US has a world-class housing finance system. It's time to equal the housing supply.

Will the Housing Crisis Worsen in 2023?

Many homeowners are still haunted by the 2008 housing market crash when property values plummeted and foreclosures increased dramatically. According to a new LendingTree survey, 41% of Americans now fear a housing crash in the next year, owing to the memory of a sudden disaster at a time when the real estate market was riding high. But NAR Chief Economist Lawrence Yun draws the distinctions between today’s real estate market and that of more than a decade ago.

“It’s a valid question,” Lawrence Yun, chief economist for the National Association of REALTORS®, said Tuesday at NAR’s Real Estate Forecast Summit. “People are remembering the crushing and painful foreclosure crisis. So, it has become a key question: Will home prices crash after the strong run-up in prices across the country over recent years?”

  1. The labor market remains strong.

  2. Less risky loans.

  3. Underbuilding and inventory shortages.

  4. Delinquency lows.

  5. Ultra-low foreclosure rates.

At the virtual conference, where leading housing economists offered their 2023 forecast for the real estate market, Yun offered assurance that current dynamics are nothing like during the Great Recession. He pointed to several key indicators of how this market differs.

Homes in foreclosure reached a rate of 4.6% during the last housing crash as homeowners who saw their property values plunge walked away from their loans. Today, the percentage of homes in foreclosure is 0.6%—also at historical lows, Yun said. He predicted foreclosures to remain at historical lows in 2023.

housing crisis or crash coming
Source: REALTOR® Magazine

Danushka Nanayakkara-Skillington, assistant vice president of forecasting and analysis at the National Association of Home Builders, said she expects housing starts to drop by double digits in 2023. Then, “as the economy improves in 2024, the housing market will gradually come out of this slump that is expected from the next year,” she added.

Builder confidence has fallen over the last 11 months as mortgage rates rose and buyer traffic slowed dramatically. Fifty-nine percent of builders have reported using incentives, like mortgage rate buydowns and price cuts, to try to win buyers back, Nanayakkara-Skillington said. Labor shortages combined with lot shortages, higher material costs, and lending issues for builders are all compounding factors preventing more construction.

And while lumber prices have eased from record highs, construction costs remain 14% higher due to shortages in other supplies, like gypsum and steel. “All of these issues will keep homebuilding down,” Nanayakkara-Skillington said. “We don’t see these issues being resolved in the near future either.”


Sources:

  • https://www.freddiemac.com/research/insight/20210507-housing-supply
  • https://www.cbsnews.com/news/real-estate-housing-shortage-crisis/
  • https://www.fanniemae.com/research-and-insights/perspectives/us-housing-shortage
  • https://www.nar.realtor/magazine/real-estate-news/2023-real-estate-forecast-market-to-regain-normalcy

Filed Under: Economy, Housing Market Tagged With: Foreclosure Forecast, Housing Crisis, Housing Crisis in America, Property Foreclosure, Real Estate Foreclosures, Real Estate Investing

Real Estate Housing Recession: How To Make it Work For You?

January 23, 2023 by Marco Santarelli

Real Estate Housing Recession

We are currently experiencing a looming real estate recession in this country. Property prices in some areas have started falling in some housing markets, especially those which experience a boom during two years of the pandemic. In late 2022, the Consumer Price Index showed that inflation had slowed for the second month in a row, which was certainly welcome news.

Nonetheless, we expect the Federal Reserve to continue to closely monitor wage growth metrics, which have historically been more difficult to predict, in order to determine how long it should maintain its restrictive stance. With a recession expected to begin in the first quarter of 2023, one plausible scenario is for the Federal Reserve to reduce the federal funds rate in mid-to-late 2023. However, given the Fed's recent statements, we believe there is a significant upside risk to the Fed keeping interest rates higher for longer.

“The wild ride known as the U.S. housing market slowed dramatically in the fall of 2022, as mortgage rates surged and home prices remained high,” said Molly Boesel, principal economist at CoreLogic. “Home sales started off strong in early 2022 but took a nosedive later in the year. On the plus side, generous amounts of home equity will protect many borrowers from experiencing the type of foreclosure activity seen during the Great Recession.”

Home Price Growth Declined Significantly Between Spring and Fall

According to data from CoreLogic’s monthly Home Price Index, U.S. year-over-year home price growth reached 20.1% in April 2022, the highest level recorded in more than two decades. However, appreciation has tapered off every month since, falling to 8.6% in November. Sun Belt states led the nation for annual home price gains for most of the year, most notably Florida, which posted the highest gain in the country from February to November.

This trend partially reflects Americans migrating from more expensive areas in the West to more affordable areas of the country, though price growth in southern states has followed the national trend and slowed in recent months. The year’s spike in interest rates is the primary factor in moderating home price growth, with Freddie Mac data putting 30-year fixed-rate mortgages at 3.22% in early January 2022 compared with a yearly high of 7.08% in mid-November.

Despite the slowdown, a major downturn is unlikely due to a shortage of available homes for sale, strong mortgage underwriting standards, and an unemployment rate that has returned to pre-pandemic levels. The strong home price growth in 2022 led to robust home equity gains across the country for nearly two-thirds of American homeowners with a mortgage.

CoreLogic’s quarterly Home Equity Report shows that in the first quarter of 2022, borrowers gained a collective $3.8 trillion in home equity since the first quarter of 2021, a 32.2% increase. During that period, US homeowners with a mortgage gained an average of $64,000. But since home price growth is the primary driver of equity growth, increases slowed as prices cooled. In the third quarter of 2022, homeowners gained a total of $2.2 trillion in equity than during the same quarter in 2021, an increase of 15.8% and averaging $34,300 per borrower.

What Does Real Estate Housing Recession This Mean for You?

There are several ways to make a real estate recession work in your favor:

  1. Look for properties that are priced below market value due to the recession.
  2. Look for motivated sellers who may be more willing to negotiate during a recession.
  3. Invest in rental properties that can generate cash flow during the recession.
  4. Look for properties in areas that are not as affected by the recession.
  5. Consider flipping properties, as a recession can create opportunities for buying low and selling high.

Opportunity! With housing prices dropping and interest rates still near historical lows, this is the perfect time to find good real estate deals and buy cheap.

Your goal should be to find investment opportunities in markets that offer the greatest long-term growth and stability. These are markets that show growth in employment and population.

Target properties that you intend to hold for a short or long period of time. You will gain equity through appreciation as the markets correct and grow over time.

Be sure to only invest in properties that provide a positive cash flow in order to cover all of your operating expenses. This is very important in order to be able to hold the property long enough to benefit from the appreciation that comes over time with real estate.

On the flip side, this is not the perfect time to sell. If you own real estate, it probably makes the most sense to hold onto your investment until the market rebounds. As always, it will. In the meantime, take advantage of the market by either refinancing your own properties for better terms or buying more property that you can rent with a positive cash flow.

During a real estate recession, property values and sales may decline. However, there are ways to potentially make the most out of a recession. One strategy is to look for discounted properties that can be bought at a lower price and potentially sold for a profit later on. Another strategy is to invest in rental properties, as rental demand may remain steady or even increase during a recession.

Additionally, it is a good time to negotiate a better price with a seller as they may be more willing to accept a lower offer during a recession. It is also important to do your due diligence and thoroughly research any potential investments before making a decision.

Filed Under: Economy, Foreclosures, Housing Market, Real Estate Investing Tagged With: Foreclosure Forecast, Housing Recession, Property Foreclosure, Real Estate Foreclosures, Real Estate Investing, Real Estate Recession

Short Sales Now Widespread

April 8, 2008 by Marco Santarelli

Roughly 20 percent of all U.S. home sales in March were “short sales” according to a real estate industry survey conducted by Washington-based Campbell Communications. According to their research, two-thirds of short sales are initiated by homeowners and one-third are launched by mortgage lenders (as a foreclosure alternative).

In a typical home transaction the seller gets final say on which buyer gets the home, but in a short sale the lender weighs in on that decision, since it’s the lender who won’t recoup 100 percent of the seller’s mortgage balance as in a “normal” home transaction.

Buying a Short Sale Can Be A Time-Consuming Process

It is important to know where the seller is in terms of discussions with the lender. The lender can drag the short-sale process on for a very long time. An offer may take anywhere from four to six weeks to get a response. But if the buyer is in the market to purchase a short-sale, then patience is going to be vital in order to pick up that good deal.

Filed Under: Foreclosures Tagged With: Foreclosure Forecast, Property Foreclosure, Real Estate Foreclosures, Real Estate Investing

Foreclosure Activity up 60% from Feb 07

March 28, 2008 by Marco Santarelli

Foreclosure Activity up 60 Percent from Feb 07There is a lot of media attention on foreclosures these days.  It seems everywhere you turn the radio, TV and newspapers have increasingly more negative news.

Although there are many markets offering great real estate investment opportunities, it is true that there is a significant increase in foreclosures, and nationally the housing market has slowed down significantly.

February foreclosure activity was down 4 percent from the previous month but still up 57 percent from February 2007 according to the latest RealtyTrac U.S. Foreclosure Market Report.  That equated to 1 out of every 557 households having a foreclosure filing of any sort.  Nevada, California, and Florida posted the top state foreclosure rates, with California and Florida metro areas accounted for nine of the top 10 metro foreclosure rates in February.

I've put together a short list of links if you are interested in more information on the current state of foreclosures:

  • RealtyTrac
  • Business Week
  • Housing Predictor

Filed Under: Foreclosures Tagged With: Foreclosure Forecast, Property Foreclosure, Real Estate Foreclosures, Real Estate Investing

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