Real Estate Market Prediction 2020 Post-Coronavirus

 

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Summary

What’s going to happen in real estate after the pandemic?

Here are the 5 factors that drive the housing market:

  1. Demographics. Baby boomers own 53% of homes in America. They own big houses and will be downsizing in the near future. This will have a big impact on the housing market trend in the next 10 years.
  2. Interest rates. Low interest rates incentivize people to buy. 
  3. Economy. The rising unemployment rate, mortgages in forbearance, and businesses shut down
  4. Consumer confidence. Even with some businesses beginning to open up, people are still conservative with spending. 
  5. Government incentives. (Stimulus). How long can the US dollar stay strong? 

THE FUTURE OF REAL ESTATE

Right now, real estate is still moving. There’s massive pent up demand and low inventory. The industry has adapted to this new reality (virtual tours, OH). It’s a hot market for sellers. Low interest rates. Prices are still strong. As long as the federal reserve keeps printing money, it will be okay. 

In the next 6 months, the housing market will move slow but prices will hold steady because the government stimulus will keep the stock market up. With the elections coming, the president will do everything to keep the economy moving along. 

When forbearance ends, most homeowners won’t be able to make their mortgage payments, so they will sell. In 6 months, a lot of distressed sellers will come up. Buyers suddenly have more options, and prices will fall. 

In 2021, home prices will drop, consumer confidence will stay low, and federal stimulus will become less effective, 

If homeowners have been waiting for the right time to sell their house, it’s right now, before the big shift happens.

What should a realtor do?

  1. Focus on motivated sellers (e.g. investors selling, airbnbs, downsizers, vacation rentals). 
  2. Price your listings ahead of the market. The faster it sells, the better price it will get. It’s more critical in a declining market.

Full Transcript

This is about to be huge. Hi there. It’s Kevin Ward, the founder of YesMasters Real Estate Success Training, helping real estate agents get more YES and more successes in their business and in their life.

The reason I say this is going to be huge is because whatever is about to happen in the real estate market is going to be huge. The question is what’s about to happen in the real estate market. A couple of months ago when the coronavirus and all of that stuff started happening, I did a video of how coronavirus is going to affect the real estate market. I’ll put the link down below so that you can go back and watch that video where I was talking then about what’s going to happen to the real estate market.

Well, now we’re three months into this whole thing. We’ve been through March, April, and May, really the last half of March, sure. About 10 weeks in as I’m recording this video.

The question is what’s going to happen post-crisis. Now we’ve got the new crisis with all of the social unrest as a result of the unfortunate death of George Floyd, the murder of George Floyd, and how that has caused a lot of disruption. The social unrest is now also contributing to the economic impact, which it’s going to have a domino effect in the housing market and real estate market and all of that, because everything that affects the economy affects people’s incomes, which affects the housing market.

Now, I want to just start first about what’s going to happen in real estate. The first thing we’re going to deal with is what’s going to happen in real estate. Two is when is it going to happen?

Is there going to be a housing crash, a real estate market crash? If so, when is it going to happen?

Now, I firmly believe that we are in for some rocky times ahead. How quickly things can get really ugly depends on a whole lot of factors beyond the fact that right now things are really ugly, not just in the social unrest, but there is a lot of things that are ugly in the economy because of the pandemic and all of the crisis that has caused. I want to look at it in this video strictly from a real estate perspective or a real estate market perspective.

First, I want to just review real quickly that there are five factors in my estimation that really drive the real estate market, and especially the housing market. Commercial real estate is related, connected, but it is a completely different animal when it comes to how we’re going to talk about it in this video.

5 FACTORS THAT DRIVE THE HOUSING MARKET

The five factors that drive the housing market are these things.

1. Demographics
Number one is demographics. Demographics is a long-term factor. It is not something that has been affected or changed by the coronavirus or anything else that’s short-term. It has to do with demographics that is age groups. We talk about the two biggest age groups currently in the United States, these are also reflected globally as well. The first big group is the baby boomers.
The baby boomers are those born from 1946 to 1964. They are now in their mid to late 50s, 60s, and 70s. They are the largest demographic in America. There is over 70 million, well over 70 million baby boomers right now. They own 53% of all the homes in America. The 53% of all the homeowners in America are baby boomers. That means they’re in mid to late 50s, 60s, and 70s, and they tend to own the biggest houses of their lives. What that means is that over the next few years they’re going to be selling. They’re going to be downsizing.

That dramatically will have a major impact in the housing market going forward, especially because the age group behind them, the gen Xers is a much smaller demographic. There’s not as many of them. There’s not as many of them that are going to be buying the big houses during the peak spending years, which is in our 40s and 50s are the peak spending years when your kids are growing up and all of that. That’s when the peak income earning years also, when people tend to buy their biggest houses. There’s just going to be fewer people in the back end to buy the houses. Then behind that is the millennials and the millennials are less enthusiastic about home ownership just as a general demographic.

It’s a large group of people, but they are not near as excited about owning houses and certainly not as excited about getting into massive debt with big houses. They’ve already got enough of debt with credit cards, car payments, and of course, the big student debt which is over 1.6 trillion dollars in student debt in America right now. There’s a lot of that going on. Demographics is going to be a major driver in the trends of the housing market over the next 10 years. This is not a short-term thing. This is a long-term thing. That’s one of the big factors.

2. Interest Rates

The second big factor that drives the housing market are interest rates. Again, this is not new. This is just something that drives real estate, right? When interest rates are low, people’s buying power goes up, they tend to buy. Interest rates have been historically low literally for 20 years.

When I first started real estate back in 1998, interest rates were just now beginning to go below double digits. People were like, wow, interest rates are awesome, it’s 8%. Then it got down to 6%, they’re like, this is like never happened before, never going to happen again. People were crazy about it.

Now we are talking about record low interest rates right now. We’re looking at interest rates in some cases under 3%. Again, historically unheard of. That is going to incentivize buyers to buy houses. In spite of all the stuff going around there, massively, real interest rates is always good.

Now, the other problem with low interest rates is that because it’s been low, America is in a massive debt bubble.

I mean, the amount of personal private debt and the amount of government debt, our federal deficit, all of that has exploded over the last 10 years. There is going to be that bill to pay. That’s causing a lot of problems.

3. Economy

The third of the factors that affect the housing market and that is the overall health of the economy.

Right now, our economy is in shambles. Now let’s talk about the factors of the economy and what makes that tick.

First, the stock market. Now, here’s what you have to understand. Right now, the stock market is completely disconnected from the reality of the economy. The stock market is being driven by the feds, by the federal reserve, not by the market or the economy. The stock market is totally, it is not being driven by reality. It is driven by the feds printing. They don’t call it quantitative easing anymore, but they are basically injecting over a hundred on average, over a hundred billion dollars a day in printed money, in debt. We’re adding to the debt.

I mean, just at massive, massive rates. That is propping up the stock market. The stock market is not a true reflection of what’s happening in the economy.

What’s a reflection of what’s happening the economy?

Well, for one thing is, do people have jobs? Right now, as I’m recording this, the first week of June, the official, according to the Bureau of Labor Statistics, the official unemployment count in the United States right now is over nearly 41.7 million people. That is nearly a 10x increase in the last three months, nearly tenfold since March when it was at one of the lowest of all times. We got over 42 million Americans unemployed officially, not to mention all the ones that are not employed or underemployed that are small business owners, that are independent contractors, in the gig economy and all of that. It is an insane amount of people that do not have strong incomes going on right now.

Nearly 10% of all mortgages, all mortgages in America are in forbearance, which means people aren’t making the house payments. Now that’s 10% that are in forbearance. There is only twice that many, another 10% that are not making all or that are either making partial or not making house payments at all. Not to mention the massive amounts of Americans that aren’t paying rent.

We have been in a massive business shut down, stay at home orders, and because of that, businesses are being shut down, businesses have been closed. Some of them are going to be closed. Many of them are going to be closed permanently. You’ve got massive bankruptcies. As we’re starting to open back up the economy, which is we’re working on doing that right now across the country, stores and businesses and restaurants and all that are beginning to open up.

Even with that, there’s going to be a massive slowdown at that because the stay at home orders are only going to be slowly undone and people are still conservative. When I say that, they’re still staying at home, they’re not spending money. Consumer spending is 70% of the GDP. 70% of our Gross Domestic Product is consumer spending. Consumer spending is really, really contracted. Most of the consumer spending that has driven it over the last two and a half months has been people either stocking up on staples, buying things just in case. Stocking up on toilet paper. Stocking up on dry goods. Stocking up on non-perishables. People buying stuff to prepare for in case things get worse. People have gotten very, very conservative with consumer spending. Because of that, the economy has contracted massively.

Even as all this comes back where we’re trying to return to normalcy, we’re still going to see a lot of people with no income and a lot of people with lower incomes. Revenues are going to be down in companies, businesses making less money. They’re hiring fewer employees back. They’re paying fewer employees.

I read in The Wall Street Journal this week that they are anticipating that approximately 42% of the jobs that have been lost during the last 12 weeks will never come back. We’re talking that alone, we’re talking nearly 20 million Americans that their jobs are gone and they’re gone permanently. That is a massive factor in what’s going to happen to the housing market.

4. Consumer Confidence

Now, the fourth factor is consumer confidence, consumer confidence. That is how do people feel about spending money? How do people feel about taking on debt? When people are scared, when people are worried, they don’t spend money.

This again goes back and it affects the economy, but it also affects people’s willingness to buy a house, to take on a massive chunk of debt and a massive increase of a monthly payment in the purchase of a house. People tend to be a lot more conservative when consumer confidence is down.

Now, again, consumer confidence right now is, one, it’s largely driven. It is largely almost totally driven by emotion. It depends on what you’re looking at. If you’re looking at the unemployment, you’re like, oh no, we’re in trouble. Consumer confidence is going to be in the toilet. If you don’t have a job, your consumer confidence is down.

If you’re looking at the stock market, you’re going like, we’re in the rebound. We’re on the upside of the V-shape recovery, it’s all going to be good. It depends on what people are looking at and what’s happening right now that is going to have a lot to say about consumer confidence.

You’re going to have some people that are saying, oh, everything is going to be good. Home prices are going to continue to go up, the housing market is going to bounce right back, the economy is going to bounce right back, everything’s going to be good. Then you have other people who are like, I don’t know. I think the sky is still falling and we are still in for a long ride. Consumer confidence is a major factor in it.

5. Government Incentives

Then the fifth, the fifth factor is government. I’m going to just call it government perks or government incentives.

Just as an example, the interest deduction on when you buy a house and you’re able to write off a big chunk of your interest or all of your interest as a tax deduction. Those kinds of things have a dramatic impact on the housing market. Probably nothing really going to change on that in the near future that’s going to affect anything.

The other thing that is like a new government incentive or a government factor is the stimulus. That’s just Americans being paid money, or Americans, whether it’s unemployment or the forbearance where right now banks can’t even file a notice of default. All of those things have an impact on what’s going to happen to the housing market. That’s the factors that we’re having to take into consideration as we talk about what now is going to happen in the rest of 2020 and beyond.

THE FUTURE OF REAL ESTATE

I put here 2020 and I put the big red arrow of like 2020 and beyond because we’re talking about what’s going to go into 2021 and so forth.

Now let’s talk about the future of real estate. What is going to happen to the real estate market? How has all the crisis, both the pandemic and the social unrest, how has all of that going to play into the future of the real estate market?

There’s still a ton of things that are in play like, “what goes up must come down”. Before this, we were in the longest period of economic expansion so when stock market goes up dramatically, at some point, it’s going to come back down.

We are in a massive debt bubble. All of those are factors that we still haven’t dealt with yet. When you have the federal reserve printing trillions of dollars in federal currency, our federal deficit has gone from the low 20, just last year it broke 20 trillion. Now it’s nearly at 27 trillion already. I mean, the massive growth of debt is something that over time is going to become another major factor.

I think that’s beyond 2020, but it’s definitely something that’s going to come into play. How long the housing market once housing prices start going down, how long they’re going to go down is going to be a major factor. I’m just going to right now talk about the next 12 months. Because beyond that, to me, it looks uglier.
Timing-wise, there’s a lot of stuff that’s into play that will determine how soon things turn down. The biggest factor is going to be government stimulus. How long can the US dollar stay strong?

As long as US dollar is strong, the feds have already said, we’re going to print all the money we need to print. We’re going to inject all the money into the economy that we need to inject to keep the economy growing.

Let’s talk about what’s going to happen to the housing market right now, because the fact is real estate right now is still moving. Right now, today, there is still a massive amount of pent up demand that’s been from months and months, and actually a couple of years of very, very low inventory. You still have low interest rates and so the market in a sense is still hot.

Now, buyers are starting to get back out. Sellers have adjusted to the fear of the pandemic. We’re doing a lot of virtual showings, virtual tours, virtual open houses. The real estate industry has adjusted and adapted to this new reality. People are going to start. Buyers are going to be out looking again. Sellers are going to be putting their house on the market again. For right now, things are probably going to stay pretty good.

As long as the stock market stays up and the fed keeps printing money, then it’s going to feel like everything is going to be okay.

For sellers right now, it’s still a hot market in a lot of areas. Now, the question is, will it last? Today, market is still good. Prices are still ticking up and down although the actual number of sales in April, and we’re looking, waiting for the finals in May, but in April, housing total sales were down dramatically. New pendings and closings have dropped dramatically, 25% more or less in different areas across the country. That is major. This is some of the greatest drop in history in terms of the number of houses to sell just in terms of things just freezing up.

If somebody wants to sell, they can still sell. If somebody wants to buy, they can still buy. Prices are still strong right now. The question is how long is it going to last? What’s happening today beyond that is you still have massive business failures. You still have reduced consumer spending. GDP is contracting. You’ve got less revenue, fewer jobs, reduced pay. All of those are realities that are in the market right now. Now, what’s going to happen in the next six months.

WHAT’S GOING TO HAPPEN IN THE HOUSING MARKET?

Here’s what I see happening in the housing market. I feel like probably is what’s going to happen is for the next six months the housing market is going to move along fairly slow, but things are going to hold steady. It’s not going to be a massive amount of sales, it’s not going to be massive amounts of activity, but prices are going to probably hold pretty steady for a couple of reasons.

Number one, government stimulus is going to keep the stock market propped up.

Number two, you have an election coming up. President Trump is going to do everything he can to keep the economy moving along. Keep stimulating, keep things going, keep helping people out. Let’s just keep things moving. That’s going to keep that going on.

The other thing is forbearance. With the Cares Act, you have the six months of forbearance where Americans can get forbearance and they don’t have to make a house payment. All the people that are unemployed right now, people that have lost their jobs or had a massive reduction of income, they don’t have to make house payments for six months if they’ve applied for forbearance.

Now, if you’re a real estate agent and you have people asking you about is it okay for them to request forbearance on their home? Well, they can.

If the government backed loans, Fannie Mae, Freddie Mac, VA, FHA, and all that, they can get it. Okay. It affects you. They can’t refinance. It’s going to show up on their credit. It’s going to be an issue for them down the road so I don’t recommend it, but nearly 10% of all mortgages are in forbearance right now.

WHAT WILL HAPPEN IN 6 MONTHS?
Now, in six months which actually becomes October from the time all this started, in October, that six months of forbearance comes to an end. Now, depending on where we are at that time, the Cares Act also said after six months you can apply for an additional six months of forbearance. We have two timeframes. We have six months from that time that started, which is October. Then we have the 12 months. Six months of forbearance followed by an additional six months of forbearance, now you’re looking at 12 months.

What happens in six months or in October when the first wave of forbearance comes to an end and people go like, okay, now I’ve got to make a decision. Do I ask for another six months of forbearance? Which just keeps them buried. Do I start paying my mortgage back? Do I realize, you know what, I haven’t had a job in six months? I’ve been looking, I’m trying to get a job, I can’t get a job. We’re just going to have to sell the house.

My prediction is that when forbearance ends and eventually these unemployed, all the people that are unemployed will not be able to make their mortgage and rent payments. Once that happens, more homes are going to start coming on the market. I see in October, in November. Again, during an election cycle, people tend to be, they tend to not do much real estate wise.

Some people will hold out for a few more months, but in that period of time between now and the election, things are going to be fairly stable, but October, November, and all of a sudden, a lot of those people are going to go like, you know what? We still don’t have a job. Our income is still down. We still are feeling uncertain. It’s time to sell.

I think in six months, more or less, you’re going to see a wave of real estate, a wave of homes come on the market. A lot of them are going to be in distressed situations. A lot of them are going to have notice of defaults. There’s not going to be as many short sales because you’ve had more people paying 20% down over the last 10 years. They’ll be people that have some equity still as long as prices still hold, but they’re going to be a lot of people in distress. Now, the problem with that is once more homes come on the market, now buyers have more options all of a sudden. This number of sales slows down, days in the market goes up, and prices start falling.

Now, lenders right now cannot even file notice of defaults during the stay at home and all that kind of stuff.

THE NEW NORMAL

When all that change, when all that is lifted and people start going back to the previous ways of doing business, and all of a sudden, they realize, wait a second, there are that sense of normalcy. I think a lot of people are going to be shocked to realize that the previous way of doing business has been forever altered.

Because of that, you’re going to have a lot of economic impact. A lot of people are going to be realizing my job’s never going to be the same. I’m not going to have the same amount of income. Business revenue is down. Company is down. There’s going to be a lot more. There’s going to be a drop in consumer confidence. You’re going to have those that went for the 12 months of forbearance, that’s going to come to an end next spring.

IN 2021…
Now we’re into 2021. Now we’re into 2021, and in 2021 the elections are past whoever wins. The reality is going to set in. Stimulus has been stimulating, stimulating. At some point, people get scared.

Another wave of houses is going to come on the market next spring. When that happens, depending on how big that wave is, home prices could begin to fall and could fall dramatically. Now you’ve got the debt bubble. You’ve got the fed stimulus that at some point is going to come to an end. You’re going to have either Trump in his second term, or a new administration, or it turns out to be president Biden or whatever, that at that point it is a new reality.

At some point, all this is going to come full circle. All of a sudden when the stock market cannot forever continue to be propped up by printing money when companies are going out of business, they are not making a profit. The price earnings ratios are in the toilet. Things are going to happen.

I think that what is probably going to happen, the high probability is prices are going to hold steady for the next several months. Around the end of the year, election time, shortly before or after, it could happen before. If you get into a panic before the election, it’s game over. That could happen.

If we make it through the election, prices are going to start dropping. There’ll be a wave of homes come then, 12 months, you’re going to see another wave of homes coming to market. The new reality is here to stay. Home prices are very likely going to start dropping. If home prices start dropping, consumer confidence goes down. Consumer spending stay small. The economy is still contracted. Unemployment is still high. Federal stimulus comes to a point where it becomes less and less effective. The value of the dollar now becomes less and less because there’s more money being printed.

Inflation can become an issue. That’s a whole different conversation. We could be in quite a long, slow ride. Then demographics comes into play because now you got all the baby boomers going like, it’s time for us to downsize. You got big houses coming on the market, the high end starts coming on the market.

Luxury homes start flooding the market and there’s nobody going to buy them. What happens to those? Home prices start collapsing there. You’re going to see a potential in 2021 and beyond, a massive change in the economy.

Now, you may be going ballistic right now in wanting to yell at me or tell me that’s right or ask questions. Those are the things that I see happening. I want to conclude this video with this.

NOW IS THE RIGHT TIME TO SELL

That is that if homeowners are waiting for the right time to sell their house… it is right now. The sooner, the better, before the big shift happens because home prices have held right now.

I think they’re going to hold for a few more months but when they start going down, it can become a massive spiral. The worst thing that a seller homeowner wants to do when they’re wanting to sell is chasing the market down. That’s what you can be talking to your homeowners about.

WHAT’S A REALTOR TO DO?

Now, if you’re a realtor, what’s a realtor to do in this market when there’s going to be fewer home sales and people are scared and uncertain? They’re, should I sell now? Maybe we’re going to wait. We’re going to wait and see what happens. Waiting to see is a dangerous plan if you own a house right now, because we’ve passed the peak. Here’s what a realtor is to do. What’s a realtor to do.

FOCUS ON FINDING MOTIVATED SELLERS

Number one is focus on finding motivated sellers, 100% all your lead generation, all your prospecting, motivated sellers, motivated sellers, motivated sellers. Investors are going to be great. Why investors?

I’m not talking about investors buying. I’m talking about investors selling. Why investors selling? Because the traditional strategy of all real estate investors is you buy low and you sell high. Well, they bought low. They bought in 2010, 11, 12, 13, and now it is high. They’re like, this is time to sell. Get out, hold my money and wait for the crash. Okay? Whether the crash comes or doesn’t come or doesn’t come soon or whatever it is, they’re going to be getting out, playing safe. Airbnbs, vacation rentals, downsizers, all of those are people. You see them, people that are unemployed, distressed sellers, find sellers.

No matter what, it is easier and better, more leveraged for you when you have sellers than when you have buyers, okay? When you have sellers and you price the house right, you put it on the market, a buyer is going to show up. Okay? Number one is you want to spend all your focus on finding motivated sellers.

PRICE LISTINGS AHEAD OF THE MARKET

Number two is you have to price the homes, your listings, you got to price them ahead of the market. You got to be aggressive in pricing because the faster it sells, the better price that your sellers are going to get. Even if the market holds steady right now, the first week a house is on the market, the better price it is going to get. That’s just the way it has always been.

When you’re in a potential of a declining market, it’s even more critical that you’d be very, very strong on pricing and you’ve got to help your sellers understand that if the things go bad, and the stuff that we’ve shared in this video will help prepare you to be able to explain to seller, here’s what could happen. If that happens, you don’t want to be chasing the market down.

Okay, now it’s your turn.

Whatever your thoughts are about all the stuff we’ve shared here, I want you to post your comments, your questions, your rebuttals, your amens, whatever it is, post those in the comments below. It’s going to help me in preparing for our next, some of the next videos is going to be coming up.

I’m going to be doing a video on, is it time to sell, is it time to buy. I’m going to be doing a video on that. That would be great I think if you’re a real estate agent helping you educate homeowners and educate potential buyers. If you’re a homeowner or a potential buyer, it will be great for you. That is coming up.

Post your comments down below. If you liked the video, give it a thumbs up. If you don’t like it, give it a thumbs down. I like to know what you’re thinking. If this video has been helpful for you or you’re new here, make sure you subscribe to this channel.

Real estate is a great game, interesting times ahead. If you stay educated and you watch and be aware of what’s happening, you’re going to be okay. Thanks for watching. I’ll see you on the next video.

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