Will Miami Lakes experience a housing crisis in 2021? I think it's rather unlikely, since Miami Lakes, is a relatively high-worth area, in demand and has been for some time. This does not mean however, that going forward, economic realities in the market place, will not affect our town's residents. What will the New Year bring to Miami Lakes property sellers and buyers? Right now, it looks great for sellers. However, it's an open question, where the market will go, in the next 12 to 18 months.
In the months ahead, the lack of inventory and low interest rates will put pressure on home values to rise, which will make affordability an issue for many home buyers, interested in living in Miami Lakes. It may be good for sellers for the moment, but all current economic indicators point to declining property values, perhaps as early as, the end of 2021 and throughout 2022. So if you are thinking of selling in the next few years, you may want to consider your options now, while properties are selling at a premium.
It's not all doom and gloom, but certain economic indicators are concerning.
As many already know, by September of 2020, the U.S. economy started to tank, due to the shutdowns caused by the declared pandemic, and was projected to contract 32% by the end of the year. Thankfully, the contraction turned out be less severe. Unemployment for instance, was over 16% at the peak of the shutdown, with projections by the doom and gloom crowd, (mostly the mainstream media) that unemployment would rise up to possibly 40%, by December. Miraculously, jobs have returned in huge way, coming down to 6.7% in November, which made the RE Peachy-Hats hopeful. Unfortunately, December job's report, was terrible, shrinking by another 140,000 jobs. For perspective, in January 2020 the unemployment rate in the U.S., was 3.5%.
Historically low interest rates, helped to accelerate the pent-up demand from Spring 2020, which resulted in a higher volume of sales, in late Summer and Fall, across many areas of the country. This increase further depleted the number of affordable properties available for purchase, placing more stress on an already fragile housing market. Miami Lakes was no exception. For perspective, inventory levels in a balanced housing market is considered to be 6 months of inventory. Miami Lakes has been under 6 months of inventory, since November 2019 and below 3 months, since March 2020.
Miami Lakes also saw well priced properties sell within just a few days, averaging 23 days, from August, to early December. Interestingly, the number of sales of all single family homes declined 6% from 2019's, 180 units sold, compared to 170 in 2020. The sale of townhouses, villas and condos in 2020 was slightly better, with 124 units sold, compared to 2019, with 121 sales.
What is in store for the Housing Market in 2021?
The Cares Act of 2020, which was enacted to offset the effects of the economic shutdown, placed temporary moratoriums on foreclosures and evictions, which has masked the effects of the shutdown to some degree. This may change in the next 18 months, as the foreclosure moratoriums, forbearance agreements expire and government protection on evictions, come to and end.
Perhaps the best indicator of a more severe housing crisis in 2021, is the current number of mortgage delinquencies. Presently, over 2 million homeowners are past 90 days and another 4 million are presently delinquent, which is 2 million more than before the pandemic, or March, of last year. In addition to these, another 5.53% of all mortgages are in some kind of forbearance agreement, with a lender. Although the percentage of forbearance agreements have declined, it is still quite concerning, that so many property owners could really be in trouble, as we head into the new year.
Historically, this situation is likely to result in millions of homeowners losing their homes to foreclosure in the coming year and next. Due to a tight rental market, many of these poor people may be left homeless, if they can’t afford the rent. It’s really that serious!
Oddly enough, COVID-19 was like a gift to many families,
since it stopped in many instances, the foreclosure process, in 2020.
What surprises will 2021 bring?
During COVID-19 pandemic, we saw the number of foreclosures drop dramatically. To illustrate this, consider that in November of 2019 we saw a total of 406 foreclosure in Miami-Dade Country, as compared to November of 2020, when we saw only 126. The total number of foreclosures in 2019 were approximately 5,320 in the county. Last year, approximately 2,145 homeowners were foreclosed, down 60% from 2019. In Miami Lakes, 14 of our neighbors faced foreclosure in 2020, down from 2019, which saw 33 of our neighbors lose their homes.
The likelihood that an avalanche of foreclosures will hit the market in the next 18 months is very real, and must not be ignored. The economy is sluggishly purring along and with President-Elect Biden’s contemplating more severe shutdowns, it is highly probable the economy will further decline and unemployment numbers will continue to rise, which may lead to many more families losing their homes.
Looking ahead, I’m more inclined to agree with the RE Data-Hats, in this respect. When foreclosures start flooding the market, property values will start to decline. Additionally, many current property owners, fearing further erosion to the equity in their homes, will decide to sell, to stop the bleeding. This will cause the inventory of available properties for purchase to further increase , and will put downward pressure on property values, until such time in the future, when the market bottoms out. At this point, it’s literally anyone’s guess, when that will be, or if it will ever happen. Too many variables, as we begin the year.
How can we tell when things start going south
and property values start to drop?
It's important to understand how interest rates influence property values. Typically, for every 1% decrease in interest rates, property values rise 10%. This is what is referred to as the 10X rule. The affordability low interest rates provide for many home buyers, is quickly wiped away by increasing property values. When this happens, many buyers are priced out of the market and we see a decline in home buyers, as we started to see, last November.
In closely studying our local Miami Lakes market, it appears that property values won't reach a plateau in relation to low interest rates, for the better part of the year, or as long as interest rates remain low and employment numbers improve. Last year's property value increase of only 4.95% was not impressive, but at least it was on the positive side. Hopefully, it will stay positive in the short and long term.
Chances are that if you are reading this blog, you are contemplating either selling your home or purchasing one, and are looking for direction. Perhaps you are asking yourself, if its a good time to sell or purchase. In my experience, the answer usually is, it depends on your personal situation. Sometimes, its not a good time to buy or sell and stay put.
In my experience, people purchase or sell property for personal reasons and not necessarily because of market conditions. If you are thinking of purchasing using financing, currently interest rates are low, and your monthly payment will be lower than two years ago, when the fixed rate on a 30 year loan was 4.5%. If you purchased a $350,000 home back then, with only a 5% downpayment, your monthly principal, interest and private mortgage insurance (PMI) payment would be roughly $2,018 per month. If you purchased at today’s average of 3% interest, your monthly obligation will be only $1,734 or $282 less per month. When you annualize this savings, it adds up to $3,384. That is a nice chunk of change!
Honest advise for Buyer & Sellers
If you decide to purchase in the near future to take advantage of low interest rates, know that it is highly likely that property values will decline, over the next few years, due to the great potential, of the market being flooded with foreclosures. So, if you decide to purchase, you will need to be in the property for the long haul. Defined as 7 years or longer, otherwise you may lose money, due to the expected decline in property values.
Consider, that it was not until 2019, when property values caught up with values, prior to mortgage meltdown, of 2008. The good news is that in the long-run, if we go by historical precedent, the property you purchase today, will eventually gain back it’s value, at some point in the future. Real estate always does and always will!
If you are thinking of selling in the near future, perhaps to size down or for some other personal reason, sooner may be better, than later, if you could use more cash, for your future plans. If you have 20% or less in equity right now, your equity may be wiped out entirely in the next few years, and you may have hard time moving on, with your life and plans. If your home is paid for and you wait to sell, past 2021, it’s just a matter of time and how much money you are willing to surrender, to market forces.
Like I said before, we all purchase and sell real estate for personal reasons. Every person and situation is different. If you could use professional guidance throughout these uncertain times, whether you are thinking of buying or selling, call me for a confidential, no obligation consultation. Let my 26 years of experience helping families like yours, go to work for you!