So today we’re going to talk a little bit about something that a lot of people are talking about today. And I could literally spend hours if not days on this subject, not just by myself, but bringing on guests ranging from economists like Peter Schiff or Mr. Yoon from the national association of realtors all the way through to, well, you name it. You know, people who are making predictions with crystal balls or people who are actually reading the tea leaves and looking at data and trying to forecast where we’re going. And there’s a lot of common denominators, a lot of common data that point to the direction we’re going because these are essentially trends. And a lot of it’s very strong. So I think there’s a lot of truth in most of the information out there.
So I just want to provide a little bit of commentary and color on the US housing market, even though there’s really no such thing as a US housing market. Uh, it all real estate is local. I have to basically just keep reminding, you know, my audience and listeners here about the fact that real estate is hyper-local. It’s not just local because you can’t look at a metropolitan area or even a city for that matter. Sometimes you have to break it down into neighborhoods or even smaller, but, you know, everybody’s concerned about housing and there are people who are sitting on the sidelines thinking that we are heading towards a housing crash. And I don’t think there’s a lot of truth in that. And there’s a lot of reasons for that. But, you know, there are markets who are experiencing price declines, and these are usually the markets that are very, very heavily overpriced. They are on the flip side to say it another way is they’re very unaffordable. And these are the big markets like San Francisco and parts of the Bay area, New York, especially the inter-core and Manhattan, where things are ridiculously overpriced. A lot of coastal markets are very much overpriced and unaffordable, but the question is, is what’s keeping the prices afloat, why aren’t prices coming down. And that’s what I’m going to comment on a little bit today.
So with that welcome new listeners, remember to subscribe and, you know, we’re being heard around the world over 150 countries. We have hundreds and hundreds of thousands of downloads on an ongoing basis and our total download count as well into the millions at this point. So I appreciate all of you for tuning in subscribing and listening and putting up with me. So anyway, let’s talk a little about us housing and the coming crash, or is there one?
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So as of now, the housing market remains hot. It’s a hot seller’s market across the country. Pretty much everywhere and annual price growth has reached a record and inventory continues to fall. And that’s really a problem because that is just creating a very tight squeeze on buyers. It’s making it hard to find inventory and it’s pushing prices up and therefore it’s actually dropping the affordability in some markets, but there’s actually a counter-argument to this as well, which we’ll get to here in a minute. These record-low mortgage rates and the shortage of inventory has kept the US housing market very strong with respect to buyer demand and strong housing demand pushed by the pandemic is driving prices through the roof here in 2020. So both prices and sales are surging month over month and they’re breaking new records. So we’re in what you might call unchartered territory, but we have new pricing highs, but we still have strong demand that actually is growing.
And the main reason for that is what I just said. Record low mortgage rates because that keeps real estate affordable. People do shop on price, but more importantly, people shop and buy based on what they can afford the monthly mortgage payment. So even though property values are higher, there are more people who are wanting to buy and are actually purchasing properties today because affordability has actually improved over the years, even though prices have gone up. And the main reason for that is because interest rates have come down, making your mortgage payment lower and more affordable for a lot of people. The problem there too, though, is that with inventory being so tight, what we’re seeing is a squeeze in the low end of the market. What we call affordable housing, not only is there a short supply of affordable housing, but we’re not seeing a lot of housing stock coming back on the market to fill that void or that gap for first time home buyers and for people who are looking for affordable housing.
And interestingly as prices keep climbing month over month, it just shows how resilient the US housing market is. Especially this year, having gone through a pandemic and really arguably an economic recession because we have had declining GDP quarter over quarter here. So the current short term demand that is reflected in sharply rising prices can be attributed to the pent up demand for home purchases from the March through July period. When a great part of the country was really in total lockdown, the housing sales and prices have stayed strong through the summer. And increasingly short inventory and high demand has really been pushing that pressure up and really just keeping it pent up. Now that we’re starting to see people come out of the woodwork, even with the pandemic going on, we’re seeing a lot of buyers coming into the market and driving sales, even though the inventory is not there, which is kind of unusual for the tail end of the year. The last quarter, when we usually see a pullback or slowdown in home sales.
So this strong buyer activity to a fall and winter housing market that is more active than normal, where buyers may face more competition and may have to act even more quickly than usual in order to get in and get a property. And I’ve even heard, I haven’t read this, but I’ve heard that there are places where there are competitive bidding wars, if you will, multiple offers on properties because they’re being scooped up literally in days and I’m not talking months or even weeks in some cases, but literally in days at the same time, it’s important to note that more than 6 million households fail to make their rent or mortgage payments in September, just a little over a month ago, according to the mortgage bankers association research Institute for housing America. So in the third quarter, the percent of homeowners and renters behind on their payments fell slightly from the previous quarter, which was expected because we saw this fallout. And especially with the moratoriums in place across the country, people were, I hate to say taking advantage of it, but to a large degree, some people did take advantage of it thinking that they can get by without having to pay. But the reality is, is that a large percentage of the people who took advantage of that really took it out as an insurance policy because they didn’t know what was coming down the road and they’re catching up now where there will be catching up on their mortgage payments because they know they need to make their payment, or they’re going to face problems after the moratoriums are lifted. And often these ended up being modifications where mortgage payments are essentially just tacked onto the back end of the loan. So it’s still being repaid. They just basically got a bit of a grace period, but with inventory falling to record lows and mortgage lending standards tightening up and unemployment actually rising new and existing home sales are predicted to fall over the remainder of this year 2020.
As was expected, home buying and selling prospects drastically improved in October 2020 from pandemic lows, which was around the middle of the year with unusually high buyer interest this late in the home buying season. Like I said, we’re now into November. Buyers are moving much faster than this time last year to beat out competition and lock in these low mortgage rates, homes are being sold at an incredibly fast-paced when compared to the previous year and housing prices have searched to new records due to very strong demand, but low mortgage rates are helping buyers offset. This increased cost mortgage rates for housing are anticipated to stay at near 3% over the next 18 months, which will make homes more affordable. Again, they purchase based on monthly mortgage price. It’s that principal and interest payment, not the total cost or price for that house. Housing inventory continues to be constrained by stronger than normal buyer demand with little new inventory coming on the market.
And that’s an important point because although builders are cranking out new homes right now, they’re still not able to up with the growing demand. It’s actually growing faster than the new housing stock or inventory being put out on the market. So these new properties are quickly taken out of the market from heavy buyer competition. Therefore housing units are still in short supply with unsold inventory sitting at around 2.7 months of supply, which is very, very, very low it’s been said for the longest time that an analyst or a normal market has anywhere from four to six months worth of supply. Meaning that if you stop producing any kind of new inventory or listings and you just let buyers scoop up or contract the remaining inventory, that inventory would last for four to six months. Well, anything below four months is considered a seller’s market, and the lower that number, the stronger the seller’s market. So again, nationally, we have 2.7 months of supply, which is a very, very low amount of inventory, but the improved selling prospects in September and October in terms of new listings are a good sign and will need to remain on that path in order to bring homes into the market because that demand is not going to go away, at least not with low-interest rates. So with supply-constrained and demand, boosted house prices seem to rest on solid foundations. Even during this, uh, kind of late in the game pandemic.
Now, according to Zillow, seasonally adjusted home values would increase by 2.9% between September and the end of 2020 and rise 7% in the 12 months ending September 2021. Next year, this forecast is notably more optimistic than previously. The previous forecast predicted a 4.8% increase in home price values between August just a couple months ago and August of next year in 2021. I’m seeing these forecasts being changed month after month. As we see inventory continue to be low and buying demand increase. And according to Lawrence Yoon, The National Association of Realtors, chief economist home prices, he said, we’ll likely appreciate 4% in 2020 before moderating two, 3% in 2021 as more new supply reaches. The market thing is, is I think these numbers are a little bit on the low side. Again, we’re talking about, you know, the US as a whole, which is really just a very broad high-level barometer. It is market-specific, and we have been seeing markets appreciate 10% or more year over year. So it really comes down to the market. But overall, I still think that next year we’re probably going to see above 4% appreciation rates as a whole.
Now, the US single-family housing market trend is this builder sentiment is at an all-time high. And that’s important to know because building permits have rebounded from pandemic lows. And this is a sign that housing continues to lead the economy forward, build their confidence as measured by the National of Home Builders and Wells Fargo, their HMI index. They show that builder confidence continues to grow, and they are very bullish that newly built single-family homes will continue to increase both in volume and in price. And we are actually seeing builders increase their prices month over month, and pretty much for this entire year because they have the ability to they’re on short supply and the demand is there. So for those investing in real estate, you’re doing very well for those investing in new construction real estate. You’re doing very well plus, just because you are getting that forced appreciation from price increases due to a lack of supply and strong demand.
It’s also worth noting that according to the Urban Land Institute, real estate market conditions and values in the US have been expected to rebound next year in 2021, even though they have been now already, and that trend is even higher in their prediction in 2022 with single-family homes, outperforming other sectors, such as commercial retail, hotel and rental. Well, we know that retail has been suffering hotel certainly has because it’s in the hospitality space. Commercial depends where in commercial, what type of commercial real estate rentals, not so much, I believe rentals are very strong and bullish going forward just because of strong demand across the board rentals, as well as new homes.
The big thing here is this, the latest weekly housing data released just last week on October 24th, 2020 by realtor.com shows the median listing price. That’s what people are putting their properties on the MLS for grew at 12.2% over last year. That means people on average are asking for more than 12% above what they were asking for their homes a year ago, which essentially implies approximately a 12% appreciation rate in housing over the last 12 months, just based on listings, not actual sales price, that marks 11 consecutive weeks of double-digit growth in asking prices. The price of the typical home for sale remains unchanged across the country on average at $350,000. So new properties listed for sale were down about 2%. And that is because that supply’s just going down. There’s less supply, but total active listings were down a whopping 38%, which is also obvious because there’s such a lack of supply. But because of that, the time on the market is 14 days faster than last year, a full two weeks faster to sell a property, or at least go under contract than a year ago, again, because there’s such a lack of supply and that just pushes prices up, but also increased competition. And in some cases, bidding wars in the sense of multiple offers coming in, which is great for the seller. And it makes it difficult for you as a buyer, you’ve got low-interest rates on your side, but you’ve got this lack of choice, lack of inventory to choose from.
So the housing market quote, unquote will crash, or will it continue to hum, along at the pace that it’s going? That is really the main question that everybody’s asking. So the US housing market is far from crashing in 2020 this year and or 2021. In fact, it continues to play a very important supportive role in our country’s economic recovery. If you want to call it that the thing is, is many parts of the economy are doing very, very well while other parts are suffering quite badly, but technically speaking, we’re in a recession, but when you step back and look at many of the parts of the economy and how they’re performing, we are actually doing fairly well.
Now I know this doesn’t sound all that great to people who are in the service sector or are low income, especially if you’re in the hospitality industry, restaurants, some support services, whatnot that will turn around. Unfortunately, there’s going to be some shifting and some permanent job losses, which will just mean that people are going to have to transition into other positions, other jobs, whatnot. But as a whole, we are seeing a very strong, robust economy and it is coming back from a lull. So the pace of existing home sales has jumped to a level not seen since 2006, which as you know, is basically the year when the housing market started to peter out. And we started to go into a housing decline that ultimately led to the great recession of 2008. But what we’re seeing right now is strong pending sales purchase, money applications, and strong construction data.
And the federal reserve has made it clear that they have no intention of raising interest rates, which is the fed funds rate and not tied directly to that. But we also see and expect interest rates to stay at historic lows with even the possibility of rates coming down, even lower than what they are. Now, time will tell, but we don’t see mortgage interest rates going up anytime soon. And certainly not at any significant pace. Historically low-interest rates are also an inducement to buy homes, but slow supply growth continues to result in high levels of home price appreciation, which is offsetting some of the affordability benefits of that lower interest rate environment. And this was according to Fannie Mae’s research that comes out of their economic and strategic research group, the ESR as they call it. But aside from that us rental payment rates appear to be staying afloat.
The National Multifamily Housing Council found that 94.6% of apartment households made a full or partial rent payment by October 27th in its survey of 11.4 million units of professionally managed apartment units across the country. Now what’s interesting about this is that these numbers show that the problem with renters and rental units being late or in default is probably lower or even a lot lower than a lot of people had anticipated or are thinking. So this is actually pretty good because it’s roughly a 5% late or default rate, which is no different than what we typically budget for in terms of vacancy and vacancy turnover. You know, it’s roughly 5% plus or minus depending on the type of unit you have and where you have that unit. But the other thing too is is that traditionally the apartment complex has have higher vacancy rates than do single-family homes. When you just have a multiunit complex, you tend to have more transient tenants, you have more turnover, you have more or higher vacancy rates. So if that’s true and it’s true that we’re seeing about a 95% or flip it around a 5% delay or default rate in the apartment space, then that would imply that we have a better situation in the residential space, like the single-family and even up to the four-unit complexes and anecdotally speaking, that’s what I’m hearing from our property managers out in the field.
Now, one last thing I just want to touch on is the realtors housing market recovery index. It’s an index. So it’s pegged to a starting point of 100 at a particular year. And then they can just track whether things are improving or declining from that reference point, it’s similar to any other index where you have a starting point or a starting year and you peg it at a hundred and it just goes up and down from there.
But according to realtor.com’s latest recovery report, the housing market recovery index reached a new high of 112.4 nationwide for the week ending October 24th, which was just recently. So that means it’s now 12.4 points above the pre-COVID baseline, which was back in essentially February, March. So what does that imply? It applies that we are, this is not necessarily a terms of appreciation, but we are 12.4% better now than we were back in February, according to this housing market recovery index. So if you were to map this index out, it basically is pegged at February 1st at 100. And then if you just look at a chart like I’m looking at right now, it went up for most of the month of March, and then it hit this peak and came down rapidly and fast over the course of essentially the end of March, April, and right through to the beginning of May where it bottomed out, it looks like 82, 83, and then it started to meander its way back up relatively quickly past me. I think people got tired over those two months of all the fear that was being, I think, put into the media or through the public from the media. I’m not exactly sure what happened there, but I think people got tired of being cooped up and just hearing everything that was going on with COVID and realizing that, okay, I still need to move forward with my life. And housing is something I need. So I was planning to buy a house or I was planning to move or rent or whatever the case is, and that’s what I’m going to choose to do. And so they went back into the market. So after May 1st, that index started to go up, it passed 85 mid-May and then continue to work its way up rather quickly, actually back to a hundred points on the index looks like July 20th, and then it just kept going up from there. And so today we’re, you know, past the 120 points even before November 1st.
So that’s a pretty strong indicator. So our housing prices increasing or decreasing, well, obviously this depends on the market. Of course, the most recovered markets for home prices include Austin, New Orleans, Pittsburgh, Riverside, San Bernardino, California, and parts of New York. And with a home price index between 110 and 115, that’s where these markets lie. Remember these markets took a pretty hard dip during the middle of a COVID there, but what’s really interesting about this is that if you look at September’s national price by the National Association of Realtors, and this is again talking about the US as a whole, we have seen 103 straight months of year over year gains. Now think about that for the last 103 months, we’ve seen a year over year gain taking any one of those months and compare, bring it to the year before that is a very, very strong long-term trend, and that is expected to continue more or less. Maybe there might be a dip but continue for the foreseeable future just because we have this inventory crunch and low-interest rates.
Regionally 28 of the 50 largest markets in the US saw the new listing index surpass the January baseline one more than last week, which means that we are seeing more and more regions improving compared to where they were back in March, April, and May. The most recovered markets for new listings include Las Vegas, San Jose, San Francisco, Seattle, New York, with a new listings index growing between 147 and 176. That means that the trends show that sellers were turning faster in the more expensive housing market. So even though they exited pretty quickly, they came in back to the market, looking for property to purchase a lot quicker than the secondary, second-tier, and smaller markets.
So just a quick summary here, the housing market before the pandemic was remarkably strong, the coronavirus crisis response was unprecedented. The federal government ordered a de facto shutdown of the entire private economy, you know, outside of mandatory services, closing an estimated 80% of businesses, which is unheard of it has caused unemployment to soar to at least 10% plus, well, tens of millions just sat idle according to the National Association of Realtors, overall sales decreased year over a year down 17.2%, which is the equivalent of 4.33 million units in April 2020. That’s down from a year ago at 5.2, 3 million units. That’s a big change. But as we talked about before, that has turned around and picked up and we are now rapidly seeing things come back and surpass where they were. We’re really at new all-time highs, even through a 20, 20 pandemic, we are at new all-time highs.
So where do we go from here with 10 years? Having now passed since the great recession, the US has been on the longest period of continued economic expansion on record, the housing market has been along for much of the ride and it continues to benefit greatly from the overall health of the economy. At least the parts that are healthy, however, hot economies eventually cool. And with that hot housing markets move more towards a balanced market. Before COVID 19 realtor.com national housing forecast was that home price growth will flatten with an expected increase of only 0.8%. But inventory was predicted to remain a constraint, especially at the entry-level pricing that mortgage rates were predicted to likely bump up to 3.8, 8% by the end of this year, 2020, but tight inventory coupled with rising mortgage rates would have led to dropping sales buyers were expected to continue to move to affordability, benefiting the smaller and mid-sized markets. The housing market predictions were pointing out that all the housing indices would trend upward for the nation as a whole, as well as every state, including the top 100 Metro areas.
After the coronavirus pandemic came into being the housing market forecast, ran the gamut from optimistic to pessimistic. People really didn’t know what was going on. And that’s the reason why so many people chose to take the forbearance just as an insurance policy. The pace of home sales relative to inventory reached a new record high in February. Although hints of deceleration were just beginning to surface the median existing-home price for all housing types in March was $280,000 up 8% from March of 2019 as prices increased in every region of the country. The median home price gains marked 97 straight months of year over year gains. At that time, again, this is all national information, not one specific market. Now the research from capital economics is estimating 4 million homes will be sold this year in 2020. This would be the lowest rate since 1991. So for comparison, roughly 5.3 million homes were sold last year in 2019. Then the trade war with China threatened international trade, creating a cloud that deferred business investment.
Now we’re looking at a certain economic downturn due to the government’s choice to close vast parts of the economy. Many businesses killing, essentially the service economy, and experts think that the economic cost we’ve paid to try to contain the virus will weigh down the economy well into 2021, which is actually a concern for many people. And this is why home sales are expected to be around 6 million in 2021, instead of the previously projected 6.3 million. Now that might not sound like a lot, but that’s 300,000 housing units, which is desperately needed because of the ongoing shortage of housing units that we have. So economic sentiment affected the US housing market. The number of homes for sale fell nearly 16% in March of 2020 this year, just after the pandemic started after listings fell 15% year over year in February. So this was a bad downward trend, and this was equal to roughly 200,000 homes being taken off the market. At that time. Again, that’s a problem because we were going into spring buying season, and all of a sudden we have COVID plus we have 200,000 less homes on the market or off the market, however, you want to put it. So that expected inventory of listings was not there. It just didn’t show up.
So the housing market is well past the recovery phase and it is now booming with higher home sales compared to the pre-pandemic period. So for the first time, since the pandemic began all four major components of real estate activity, the demand-supply pricing, and sales are growing above the pre-COVID pace. I’ll say that again, the demand-supply pricing and sales are growing above the pre-COVID pace. So many experts were predicting that the pandemic could lead to a housing crash worse than the great depression, but that’s not the case. The good thing, at least for buyers and investors like us is that house prices have nearly flattened in many places. And they are poised to remain stable for the rest of this year. And with strong buying pressure, lack of supply, and low-interest rates, it is expected and probably very likely that we are going to continue to see strong growth in most of the markets around the country with strong demand and increasing prices basically forced appreciation on these properties because of economic conditions. So for the most part, this is all very bullish for us as property owners and real estate investors, not so good for people who are trying to get into the market right now. And the only saving grace that they have is the reality that their mortgage payment is all things being equal, lower today than it was a year ago because of the mortgage rates being lower.
Prices have gone up. Yes, but mortgage rates have come down increasing the affordability for the most part for a lot of these people who are looking for housing, if they can find it. So for you, all the cards are stacked in your favor. So this is a great time to be building, adding to your portfolio. It’s a great time to be investing in real estate, make intelligent decisions, have the right teamwork with the right people, build your portfolios intelligently. And you will look back in the rear view mirror a year from now two, three years from now and say, I’m glad I didn’t wait or miss out on that opportunity or bury myself in fear because of everything that was going on that looked like dark times, but in reality was creating tremendous opportunity going forward.
So I hope that makes sense. I’m not making any bold predictions here. I’m just looking at the trends and the data, and I’m just drawing my own conclusions. So I hope that helps. And I really appreciate you tuning in. I know it’s been a longer episode than I have been doing lately. We have some new guests coming on here in the coming weeks very soon, actually. So one is a very, very special guest. You’re going to be excited to hear him on the show. Many of you would know who he is. He is certainly not in the real estate space, but I think you’re going to love him as a guest. So stay tuned for that. I appreciate you listening. Thank you for being a subscriber and we will see you all on our next episode.
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