Are we there yet?

While the trip through 2020 has been challenging for nearly everyone, we’re grateful that the housing market has remained strong. High buyer demand and low inventory have led to increasing home values and a fast moving market.

Where are we headed?

As we turn our hopes for a better 2021, let’s play 21 questions with the current situation in the economy and housing market.

How does 2020 compare to 2008?

The ‘08 economic crash was generally led by the financial industry taking advantage of loose mortgage lending practices. It drove housing prices too high in the lead up, then very low during the crash. Policy reform in the mortgage and banking industries put protections in place to prevent another ‘08. Home values have continued to climb 7.5% in 2020, and it may be more appropriate to compare 2020 to other recessions. Excluding ’08, home values are minimally effected by recessions. 2020 is unique because homeowners in financial hardship have been granted protections.

What is forbearance?

Each lender or loan servicer is different and if you are having financial hardship you should contact your individual provider. Forbearance is like a pause button. You temporarily suspend payments then resume where you left off. This will lengthen the life of the loan, but there are usually no fees or penalties. Forbearance numbers were high in April and May, but the number of forbearances peaked the last week of May around 8% and is seeing gradual declines down to 5.5%.

What is a payment deferral?

Deferred payment is similar. You pause payments, but when you un-pause, all of the skipped payments are due. This is commonly confused with forbearance.

What is a loan modification?

A loan modification restructures your existing loan’s rate or term to change your payments. This requires extra paperwork compared to the other options.

How will repayment changes effect the housing market at scale?

Homeowners having financial hardship have three ways to relieve their mortgage burden: sell, short sale, or foreclosure. 

What is a short sale?

A short sale is when the lender(s) agree to accept less than the mortgage value of the home. They often will do this because it is cheaper than foreclosing. A short sale impacts a home seller’s credit rating much less than a foreclosure.

What is foreclosure?

Foreclosure happens when a person fails to pay their mortgage payment and the bank takes the house as payment for the mortgage debt. Foreclosure usually requires two separate triggers: financial hardship and low home equity. We are seeing record levels of home equity. Government intervention has also dramatically dropped foreclosure rates. St Croix County averages 3 foreclosures a month.

How will mortgage interventions effect the market?

Some industry experts expect that the government foreclosure moratorium expiration will lead to an influx of foreclosures. While it’s impossible to predict policy decisions, we think it’s best to be prepared for any potential shift.

Should I sell now?

The best time to sell is always when you are ready for a lifestyle change. That said, accurately priced homes are still selling very quickly.

Why is the market so strong?

Since 2008 new homes haven’t been built fast enough. Nationally we are short 2.5 million homes for our population. Combine that with a large portion of the population aging into first time homeownership and the competition is fierce.

Should I build?

Building is a viable option because inventory is so low. We have seen record high prices for materials as supply chains were tested. Remember if you do build, we can help negotiate with the builders and protect you during the process.

Where are mortgage rates headed?

Fannie Mae is forecasting continued low interest rates. They estimate rates will continue to be below 3% in 2021.

How does the Twin Cities compare to the the national averages?

Nationally homes have appreciated 7.5% in 2020. The Twin Cities area has appreciated 10.7% in 2020.

So, where are we headed? What should we expect for the 2021 housing market?

While there is no crystal ball, experts seem to agree that inventory will remain very low with homes selling fast and home prices continuing to climb. Mortgage rates will stay low and there is a small risk of a wave of foreclosures, depending on how the government chooses to handle the eviction moratorium.