It's no secret that real estate prices are tied to mortgage interest rates. What you and I care about, is our home's monthly payment.
With interest rates now down roughly 21% since December 2018, monthly payments on homes are down roughly the same.
Said another way, real estate in America is on sale right now.
To be clear, the actual price of homes are beginning to rise again (faster than many predicted this year), but the payments definitely feel like they are on sale due to the lower rates.
As rates have surprised many with their rapid descent, housing prices are starting to surprise to the upside. CoreLogic is one of the most advanced real estate data analytics companies in the world. They publish a well-respected and widely watched monthly report about real estate data, trends and make forecasts with impressive accuracy.
In May CoreLogic predicted U.S. residential real estate appreciation would be 3.6% for the ensuing twelve months, then in their June report they revised that expectation higher to 4.7%, and in the July report that just came out, they are now estimating home price appreciation for the next twelve months to be 5.6%.
Did you miss the real estate crash?
CoreLogic thinks so, they believe real estate is returning to more robust appreciation rates due to lower interest rates.
CoreLogic is not the only one predicting higher real estate prices ahead. According to the Home Price Expectation Survey (a survey of over 100 leading economists, real estate experts, investment and market strategists) we can expect cumulative appreciation of 16.8% over the next four years.
Of those polled, the most optimistic (bulls) believe we'll see 27.7% appreciation, while the most pessimistic (bears) believe we will see 6.7% appreciation.
Even the most pessimistic bears see 6.7% appreciation over the next four years.
I believe that's because most of them see interest rates continuing to fall, and as interest rates fall, housing becomes more affordable, attracting more buyers and making higher priced home purchases possible.
Looking at the July Housing & Mortgage Market Review report published by ARCH Mortgage Insurance, they believe only North Dakota (due to high dependence on oil) has a moderate risk of home prices being lower in two years.
ARCH Mortgage Insurance is in the business of insuring hundreds of thousands of homes with mortgage insurance, which they are liable to pay if homes go into foreclosure and ultimately are sold for a loss. It's their business to have analytics that detect housing trends and their analysis is that the country will do well over the next few years.
Most of us have a cognitive bias about recessions and housing. We remember how painful the last recession was and the catastrophic impact it had on housing.
Surprisingly, housing does very well throughout most recessions.
What most people don't realize is that during economic recessions, interest rates go down (which is already starting to happen), as monthly housing payments are reduced, new homebuyers that simply could not afford that price point previously become active participants in the housing market.
In spite of the last six recessions and looking back over fifty years, housing has continued its long term trend of appreciation around five percent per year.
Even those families who bought at the most unfortunate time, have seen significant appreciation (assuming they were able to hold on to their properties) since 2005.
As a father of two young children, I am counting the days until they leave our household. I know my days with them are numbered and soon enough they will be out to seek their own lives and build their own families.
With this in mind, I have to ask myself how long I'm willing to delay the gratification that comes with owning the ideal home and living the ideal lifestyle with them. Am I willing to lose precious memories with my family out of fear of the next recession?
Reassuringly, the data shows that I don't need to be fearful of the upcoming recession, that in four of the last five recessions, housing faired quite well. The Great Recession of 2008 was the clear outlier due to the fact that the bubble that eventually deflated and caused that recession was in housing and mortgage.
The liar loans of the past are behind us and those qualifying to buy homes today have documented income, assets, credit, and skin in the game via down payments. As a result loan delinquencies are at a near all-time low. Currently less than one in four hundred homes are in foreclosure.
"Thanks to a 50 year low in unemployment, rising home prices and responsible underwriting, the U.S. overall delinquency rate is the lowest in more than 20 years." - Frank Nothaft, Chief Economist for CoreLogic
With lower interest rates and healthy demand from strong employment and income growth, the future of the real estate housing market looks strong. Waiting for the next Great Recession and delaying the gratification that comes with living the ideal family lifestyle you desire, might not have the risk versus reward payoff some are waiting for.
Jon Linnett NMLS #1053680
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