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Experts predict that Central Florida's sky-high real estate prices will continue to rise... The Price Appreciation Rate Will Slow Down!

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Real Estate Agent with Re/Max Town & Country Realty BK560717

The Orlando-area market now is not like the boom-bust cycle that followed the Great Recession: strict credit criteria are the norm, and a number of factors have kept house supply low.

Multiple offers and bidding wars have become commonplace in Central Florida and around the country, evoking the fevered market that accompanied the 2008 housing meltdown. In July 2021, the CoreLogic Home Price Index reported the highest yearly growth in its 45-year history, with home prices rising 18 percent year over year.

That begs the unavoidable question: Will Central Florida's history repeat itself?

The short answer is yes. No.

To find out if a housing crisis is imminent, USA TODAY spoke with eight experts.

For starters, they claim that the housing market in 2021 will not be similar to the boom-bust cycle that followed the Great Recession. Mortgage lenders made subprime loans to applicants without confirmed income or enough down payments in the years leading up to 2008 while also pushing hazardous lending products. Even with ultra-low interest rates, strict loan underwriting procedures are the norm these days.

On the supply side, a decade of underbuilding, regulatory hurdles, high construction costs, and individuals staying in their houses longer have all contributed to a low housing inventory.

Buyers' desire for greater room during the pandemic, low mortgage rates, increased savings, a better labor market, and millennials approaching their prime homebuying age have contributed to the inventory shortage.

However, experts believe that home price rise will slow in the coming year.

A more engaging mortgage market

According to Frank Nothaft, chief economist for CoreLogic, there was a boom of high credit risk mortgage products in the 2006 mortgage market, with around one-third of all mortgages being low or no-documentation loans or subprime loans.

"In the economy, in the mortgage sector, there was a full degradation and weakening of credit underwriting criteria," he says. "No-documentation loans were dubbed "liar loans" because borrowers lied about their income, job, and financial holdings.

This time, he claims, things are radically different.

"We have high-quality mortgage origination criteria, so mortgage finance isn't driving up housing prices today," he explained.

Forbearance programs

Forbearance, which allows homeowners to miss or make reduced monthly mortgage payments under the CARES Act, has been one of the lifelines for homeowners throughout the COVID-19 pandemic.

Homeowners now have extra cash on hand in case of an emergency.

More than 4 million mortgages in the United States were in forbearance in May 2020, two months after the outbreak caused chaos on the economy. According to the Mortgage Brokers Association, there are currently 1.6 million homeowners on forbearance agreements, which will begin to wind down by the end of September.

Banks are more ready to assist borrowers to restructure their loans due to the strong property market and price rise.

Those who are unable to make payments may choose to sell their homes and rent instead, according to Jeff Taylor, managing partner of Mphasis Digital Risk, a technology and risk consulting firm that works with mortgage lenders.

"Right now, we're estimating that roughly 8% to 10% of the homes will have to go through the foreclosure process," he says. "And it'll be geographically dispersed, so it won't have a significant impact on the housing market."

According to the Federal Reserve Bank of St. Louis, more than 11 million mortgages entered the foreclosure process between 2008 and 2012, which included the Great Recession.

There are two economies.

According to Jonathan Miller, a state-certified real estate appraiser in New York and Connecticut, "the pandemic inflicted significantly more economic damage to lower-wage earners than to mid- and upper-tier pay types, who tend to be homeowners rather than renters."

According to Miller, homeowners now have a record amount of equity at their disposal and are not as leveraged as they were in the mid-2000s with the quick rise in prices.

"They're not utilising equity as an ATM in their home, as they were during the bubble," he says, "since the economy is fundamentally healthier." In terms of property values, he predicts "more of a plateauing event" rather than "some sort of rapid correction."

Homebuyers in their twenties

According to housing economist Logan Mohtashami, the most significant housing demographic patch ever recorded in history — around 32.5 million people between the ages of 27 and 33 – will be actively looking to buy homes until 2024.

"While I've stated numerous times that the current housing cycle is the unhealthiest since 2010, it's not because of a horrible credit boom. "It's because homeowners appear to be doing well financially, they're staying in their homes longer than ever before, and the inventory constraint is forcing bidding," he explains.

Indeed, homeowners are staying in their homes longer than ever before. According to Redfin, a full-service real estate agency, the average homeowner remained in their home for 13 years in 2020, up from 8.7 years in 2010 and 6.4 years in 2005.

Over-leveraged isn't a good thing.

According to Benjamin Keys, a professor of real estate at the University of Pennsylvania's Wharton School, increased scrutiny of income and assets, as well as the elimination of "silent seconds" (a second mortgage placed on an asset for down payment funds that is not disclosed to the original mortgage lender), have been critical in establishing home buyers' ability to pay.

"Mortgage default rates were extraordinarily low before the COVID programmes were implemented, and I expect them to revert to that level once the economy completely recovers," he says.

According to Taylor Marr, Redfin's head economist, "the majority of the increase in property prices is automatically handled by lower mortgage rates and increased salaries."

"All of the stimulus money that has gone out over the last year allowed folks to put a little bit more money down to meet the closing and relocation costs," Marr explains.

As additional properties come on the market, Marr anticipates the strong demand to continue.

"It'll just be moving forward in a good manner," he adds, noting that price growth will decrease from double digits to single digits next year as mortgage rates rise. "However, where there is a price correction, not so much."

There is still a housing scarcity.

One of the elements contributing to the hot housing market's valuation stability is an underbuilt market.

According to Freddie Mac's study, the housing shortfall has expanded by 52% from 2.5 million in 2018 to 3.8 million by 2020.

It was discovered that the loss in entry-level housing is even more acute than the total shortfall. The proportion of entry-level residences in total building has decreased from 40% in the early 1980s to roughly 7% in 2019.

"House price increase is being driven by a lack of supply rather than credit-fueled speculation," says Leonard Kiefer, Freddie Mac's deputy chief economist. "House prices may be high, but they are being supported by some underlying economic forces, not only speculation and very easy credit."

According to Lawrence Yun, chief economist for the National Association of Realtors, because of the pent-up demand and those priced out, even a price drop should have little effect on the housing market.

"They'll simply leap back into the market, seeing it as a second chance," he predicts. "We're still dealing with a housing crisis, with inventories remaining lower than a year ago and much lower than two years ago."

Why will home price rise slowly?

Most experts believe that inventory will rise in the spring of 2022.

According to Nothaft, some of it will come from new construction or elderly homeowners who have been putting their homes on the market for the last two years because they didn't want to sell and move during a pandemic.

He expects a part of the population of debtors in forbearance who cannot make mortgage payments to sell their homes.

"I don't think there'll be a big amount," Nothaft adds, "but it will add to the inventory for sale."

Furthermore, if mortgage rates rise next year, affordability will be further eroded, reducing the number of potential home purchasers in the market. "As a result of reduced demand and more supply, price growth will decelerate," Nothaft predicts.

 

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About Realtor Scott Garrison:

Bringing over 33 years of experience as a local Orlando Realtor, Top Central Florida Realtor SCOTT GARRISON of the Garrison Brothers Realtor Team at ReMax Town & Country Real State has helped perhaps more Orlando-Area families and investors buy and sell Central Florida Residential Real Estate than any other of the #19,000+ Orlando Realtors currently working in the Central Florida area! 

 

Living in Oviedo and with RE/MAX Real Estate offices in both WINTER SPRINGS, Florida and WINTER PARK, FL, Top Realtor SCOTT GARRISON actively serves your best Residential Real Estate needs virtually anywhere you’d want to be in Central Florida… including Orange, Seminole, Volusia, Osceola, and Lake Counties. Scott has lived here in the Central Florida local Orlando-Area for nearly all of his life, attending the local Winter Park High School and graduating with several degrees from the nearby University of Central Florida. 

 

As a Top Seminole & Orange County Real Estate Agent, Realtor Scott Garrison also has extensive experience in Residential Sales and Purchases, Vacant Land and in helping clients with Foreclosures and Short Sales!  He owns multiple Rental Property right here in the area, and over the years, has done many “flips” by buying “ugly houses” and making them Pretty for a new buyer, so he also understands the Real Estate Investor mindset!  Call Scott today to find out why “This Realtor WORKS!”

Comments (1)

Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Scott, great points for buyers to think about before they jump in with both feet.

Feb 15, 2022 04:05 PM