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We have experienced the biggest health and economic event in recent times. Despite this, the housing market has been on a huge upward swing and many are asking how long can this trend really last. Is the housing market in a bubble? Can housing prices accelerate this fast forever? In this video, we will discuss some of the points that people are making for why we are headed into a market crash and what other factors you may need to consider to make an informed decision. The unemployment rate remains extremely high. According to the Bureau of Labor Statistics, the real rate of unemployment which is the U-6 rate of unemployment is 11.7% which is still extremely high. The U-6 unemployment number takes into consideration the unemployed, the marginally attacked, and the discouraged workers which is why it is higher than the rate that the government reports, the U-3 unemployment. This is a large number of people who are unemployed, and in many instances are having a hard time keeping up with and paying their bills. Imagine the strain that this will put of people’s ability to pay their mortgages. This can be seen first hand in the forbearance rate. People enter into forbearance when they have difficulty making their monthly mortgage payments. This give the homeowner a break in their mortgage payments while in the program and while they are having financial difficulties. Once they exit forbearance, the thought is that the balance due will be tacked onto the end of their loan so they will not have to come up with this money up front. The government created this program with the Cares Act and when the pandemic first started. There are 2.8 Million people in forbearance or 5.54% as of December 1, 2020 according to Mortgage Bankers Association. These are all people who have gone into the forbearance program and told their lenders that they are having financial trouble and can’t pay their mortgage. What would it do to the housing market if all of these homes were to go on the market at the exact same time? Well, if demand were to stay the same and you had a wave of housing come onto the market at the same time then housing prices would take a significant hit in the process. The could be seen in 2008 and near after when the demand for housing declined as the number of houses hitting the market increased drastically. So many are asking, are we facing another 2008 in the future? Not so fast! There are many other things that we need to consider before coming to that conclusion. First is the supply vs demand of what we are currently seeing in the market today. There is also a supply issue today with people being unwilling to put their home on the market and have people walking through their home in this environment. This is creating a supply of homes coming on the market while demand remains strong. As a result, home prices have been soaring. There is a huge deficit in the number of houses needed in the US in order to meet demand. According to Freddiemac.com, in 2017 they estimated that we needed to build an additional 370k houses per year just to meet the demand for housing. This is only the number of houses for that year and does not take into consideration the huge housing deficit of the years before that. People are wanting to move to less populated, spread out areas. With the current state of the environment, people are seeking areas where they are further spaced out from their neighbors. This is translating into higher demand for housing in certain areas of the country. In those areas, housing prices will rise more quickly due to this increase in demand. Another thing to take into consideration is the historically low interest rates that we are seeing today. This could be a reason that would entice certain people to move to a house they find more desirable, or an area that better fits their desired lifestyle. Either way this would create more demand for housing. When people make large purchases that they have to finance, they make those decisions based off of what their monthly payment will be. Since interest rates have dropped to historic lows, people are looking to take advantage of this opportunity. As you probably have seen, many have been racing to refinance their house for those individuals who are wanting to stay put in their current home. Others are on the search for a home they find to be better suited for them. With interest rates lower, home buyers can buy more house for their money. The previous things that we discussed point out the massive amount of demand that we are experiencing in this current environment. This is demand that could very well ease the number of foreclosures that will inevitably hit the market in the future. But will that along be enough to stop housing prices from crashing like they did in 2008? Well, that will likely depend of both the government and bank response once individuals are coming out of forbearance. Foreclosures take a long time to process. Foreclosure can take a year, maybe more from the start of a foreclosure to finish. This gives a lot of time for individuals to make improvements to their situation and find ways of getting caught up on their payments. Banks have learned their lesson from the financial crisis of 2008. They lost a lot of money foreclosing on houses and getting back 50% or less of what it was originally worth. This time, they are far more likely to go back to the borrower and negotiate terms with them in order to keep those families in their homes and keep payments coming into them as well. After all, a bank is a business and they are in the business of generating revenue, not losing money. If that is not enough, the government is likely to keep extending the forbearance moratorium. With the uncertainty of the current economy, the government will likely continue to extend forbearance for people in order to get them back on their feet so they can start making their payments again. I foresee them doing this for a little while until it looks like the economy is actually starting to recover. Who knows what measures they will look at or when they will decide that the economy is strong enough to end the forbearance program, but the probabilities point to it being around a little while. Lastly is the big investors who are waiting on the sidelines in cash for a large number of foreclosures to hit the market. These investors will act quickly and be able to scoop up a number of these foreclosures to put into their portfolios. With the number of properties that they will be acquiring, it will leave enough for a health inventory level for the housing market. So, will there be a massive discount in home prices like there was in 2008, probably not! If that is what you are waiting for in order to buy, you will be waiting a long time. The probabilities point to housing prices leveling off when forbearance ends and foreclosures coming onto the market. During that period of time, home prices will stay stagnant, or best case scenario they may dip slightly.