So maybe you’re a homeowner? Maybe you are currently renting and thinking about becoming a home owner? Or maybe you and the family are bursting at the seams. Time to sell that 2 bedroom condo and move to the suburbs into that 4 bedroom home you and your family have always been dreaming about. It’s not really a secret, real estate in San Diego and just about everywhere else in the country was absolutely on fire in 2020. Homes hit the market and sold in usually a matter of days… sometimes hours. We saw homes getting 10, 20, even 30 or more offers in some cases! The market was absolute fire, total gangbusters! So what is 2021 going to look like as far as real estate? There’s no way that can repeat right? These prices are ridiculous, the market has to come crashing back down to reality. right? Well… Not necessarily. In this blog (and video above), I’m going to talk about exactly what I expect 2021 to look like so if you are considering buying or selling any real estate in 2021, this blog post is for you.
So What Happened In 2020?
So right off the bat, if you talk to anyone who bought or sold real estate in 2020 you are likely to hear something like it was so hard, we bid on 10 different houses, oh my god, there were barely any houses to look at, we had to bid before even seeing the house… That kind of stuff. It was busy, and it still is. Going into 2020, it was already shaping up to be a super busy year. Homes were selling quickly in January and February, more so than previous years. This was primarily fueled by insanely low interest rates on mortgages. The amount of homes for sale was already low (the industry term is inventory or low inventory levels), we were seeing multiple offers and then guess what, BOOM. It got worse. The virus hit and the housing market not only was unaffected, it got more competitive! The reason is pretty simple in retrospect. The mortgage rates that were already at record lows dropped further, at the same time we saw less homes for sale on market than normal… a lot less. People on the fence or maybe were thinking about selling and didn’t really need to did not put their home on market for sale. The end result is we saw about half or even less the normal amount of inventory for buyers to buy. The end result is far more buyers wanting to buy the same homes and far less sellers to sell homes. Simple economics here. Huge demand an low supply. The price was only going one direction. As of the time of recording this video, the state of the market is basically the same. Tons of buyers and very little homes to buy. I’m going to get into a few factors that might change this but that’s where we are today.
So the market the market is hot, I think you kinda get the picture by now. So the next obvious question would probably be is this sustainable and when will it crash? I mean it has to crash right? Well, nobody knows for sure. I always say, if we did, we would all be rich! Seriously though, here are the scenarios I am going to keep an eye on that could spark or fuel a real estate crash. That being said, I don’t think any of them are very likely in 2021 but who knows… I mean who saw the virus coming.
Scenario to watch number 1: The Vaccine Works Quickly
The virus vaccines work and they work fast. Vaccines are already happening. I think, most of us (if not even yourself) know someone who qualified and has taken the first round or maybe even completed it. Picture this, it’s highly effective and we reach herd immunity and we reach it quickly. Now imagine if you were a homeowner, you planned to sell in 2020 but who wants a bunch of buyers touring your home during a worldwide pandemic! Well, the pandemic is under control now. Time to go to market right. A big factor here is timing. Let’s say this happens around maybe April and in a short time frame like 1-2 months. We normally see an increase anyway in homes for sale in the spring and the summertime anyway. Now we could have a scenario where that seasonal rise in inventory levels happens and at the same time, we have an influx of all the homes that waited out 2020. This is all at the same time! In theory, this could result in many millions of homes flooding the U.S. market in say 1-2 months, San Diego would be a part of that. This could potentially flip the ratio from more buyers than sellers very quickly. I would love to see the vaccines be effective but a slow but gradual inflow of housing inventory to the market would be beneficial.
Scenario to watch number 2: The Fed Slows It Down
The federal reserve decides it’s time to slow the market down. Up to this point, those insanely low mortgage rates I mentioned earlier are only possible because the Federal Reserve has been extremely busy in buying mortgage backed securities, this is in addition to charging low overnight lending rates to banks. This is the activity that drives and sets many consumer interest rates including mortgage interest rates. If the FED stops buying those mortgage backed securities or they raise the overnight borrowing rates, the mortgage rates could rise and the end result will be we will see less buyers. Less buyers means the supply of homes will increase. How far this would go is anybody’s guess but if that inventory or supply level gets to around 6 months, we would really see a softening of real estate prices very quickly.
Scenario to watch number 3: Lenders Tighten Up Their Standards
Lenders tighten up their standards for lending. You may recall the CARES ACT that among many things, allowed home loan borrowers to enter mortgage forbearance. This means if you are facing any type of kind of hardship 0with only a pinky swear required) you don’t have to make a mortgage payment and are protected by a foreclosure moratorium all the way through January 2021. The most important benefit here is this prevents families from becoming homeless, that would be awful. Among several negatives, the negative I’m most concerned with here in this scenario is that some banks are losing their you know what because they have loans outstanding with homeowners who are protected by the foreclosure moratorium. They can’t start the normal process of foreclosure as they normally would. These banks could decide that enough is enough and make a change to lending requirements hence making the many home loans tougher to qualify for. Changes could be lowering debt ratios, higher min credit scores, 3 years consistent income instead of 2, that type of stuff. If that happens, less buyers will qualify for a loan and you will see a reduction the number of buyers which would ultimately start to increase the number of homes on market and prices could start to soften.
Scenario to watch number 4: The Foreclosure Crisis
The foreclosure crisis. I feel like this has been talked about and covered by so many You Tubers (myself included) that I will just keep this one brief: At the time I recorded this video, there are approximately 2.8 million borrowers in mortgage forbearance. As I mentioned in this last scenario, this protects federally mortgage backs loans (which make up the majority or about 70% of all home loans) from any type of foreclosure activity for at least until January 2021. Many states have included additional protections to non-federally backed loans as well. What this means is that at some point that foreclosure moratorium is going to end. If that happens, all those back up files that would have been foreclosed upon then will all happen at the same time. That could create a log jam and an overflow of foreclosure hitting the market. It’s important to note that not all loans in forbearance are in default. Many borrowers who took the forbearance option did it strategically in case they actually do need it. One quick note I want to mention people ask me this all the time. If you don’t make mortgage payments and you are in a forbearance program, your payments are still reported as delinquent and your credit takes a hit. OK, lets get to what to expect for 2021.
What To Expect In 2021
I really want to say just hang in there. If you got outbid in 2020 for a house, don’t worry 2021 will be better. If you have a home to sell but you are worried about selling and then becoming a home buyer, don’t worry there will be more homes to buy this year. What about just buying a new house, that’s easier right? There are thousands and thousands of new homes being constructed? Plenty for all. That’s what I really want to say. Balance in the market would be a welcome change. Unfortunately I don’t think that is going to happen. I do think 2021 is going to be a lot like 2020 as far as buying and selling real estate and the direction of home prices is going to continue to trend upward. You should expect stiff competition from other competing buyers and if you are selling a home, expect to experience the gift of receiving multiple offers and top dollar but prepare to become a buyer as you size up or size down on the other side.
That being said, the big difference will be picking and agent and a lender up to task. Make sure you pick the right agent first. You will need a great strategy right from the start. If you find your dream home, and 14 other buyers also find it. You need to be prepared and have a great plan to get your offer accepted. Also, picking a great home lender is just as critical. You are going to need someone who is willing to help your agent get your offer accepted. If you need recommendations, hit me up anytime. I only work with the best lenders. My final thought on this is going to be if you are planning to buy or sell a home in 2021, just be prepared, pick the right people to work with, be aware of the market, and have a plan. With a little perseverance and a little grit, you will be successful. It can be one of the most exciting times of your life actually.
So that’s my take on the future of the San Diego real estate market and if it looks like happy or sad times for buyers and sellers.
Don’t forget, if you are thinking about moving to, from, or inside San Diego, hit me up anytime. I love to help and I’m always here for you!