My biggest fear for the housing market in 2020-2024 was that real home price growth would take off in an unhealthy way. Last year I cheered, and I will always hope for negative real home price growth on a year over year basis. We saw that happen, in 2019, which I wrote was very healthy for the U.S. housing market. However, this is no longer the case anymore for 2020.
Three big reasons why I was worried about this.
1. It’s the year 2020-2024!
We have the best housing demographic patch ever recorded in U.S. history, running into their first time home buyer median age of 33. Ages 26-32 are massive. Think of these home buyers as built-in demographic replacement demand. If we get any movement on Americans buying up, downsizing, and investors, combining all these groups keeps housing demand stable or growing.
2. Housing tenure is at ten years, from 1985-2007 it was running at five years. Housing tenure this long can lead the inventory to be lower, which can drive home prices hotter when demand picks up.
3. Mortgage rates can stay low this entire period. When I mean low, I am talking about sub 5% mortgage rates during the years 2020-2024. Unless we do have a massive fiscal stimulus plan when the economy is standard again. I can’t see the 10-year yield getting above 3% with any duration during this period.
As we can see below, real home prices are growing again; it’s even hotter than this currently, which is one aspect of housing in 2020 that I don’t like. I don’t believe we will see the growth we saw from 2002-2005 because lending standards, while still liberal, do not facilitate speculation debt.
From Advisor Perspective
Ralph McLaughlin from Haus does good work on the weekly data for those that want faster info
Mike Simonsen twitter account is a good follow as well if you want more weekly data on this.
We don’t want to see a breakaway real home price growth; it doesn’t do anyone any good for this to happen. I hope for next year because seasonality is kicking in with inventory now for the housing market. We want to see bond yields rise and cool this market place down. My very last variable for my AB (America Is Back) economic model is for that 10-year yield to go above 1% and eventually start a range between 1.33% – 1.60%
Regarding the Forbearance Crash Bros, every week that goes by, the data gets better on this data line as more people leave Forbearance. Also, next year we might see more disaster relief aid for homeowners which means extension. So the housing bubble boys who whiffed in 2020 more than any time in American economic history are not going to get their 30%-50% home price crash next year either.
More on that topic here:
Keep an eye on real home price growth in 2021; we want to see this cool down because we all want a stable housing market. If the U.S. economy gets a vaccine, better Covid19 treatments and more disaster relief, then my wish for a cooling off in price growth can come true.
Also, here is an interview I did on Housing Wire talking about higher mortgage rates and how we get there.
Logan Mohtashami is a Lead Analyst for Housing Wire, financial writer, and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami, now retired, was a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987.