Have your recent homebuyer clients seemed extra happy to buy a house? It’s not just you — homebuyers who purchased during the past year are positively elated, with more money in their pockets and more house in which to enjoy their stay-at-home lives.

The majority of U.S. homebuyers who purchased from April 2020 through April 2021 have improved their financial and housing situations, according to a Redfin survey. These pandemic homebuyers report that, after their move, they have the same or:

  • more disposable income;
  • lower housing costs; and
  • bigger homes.

With more wiggle room in their balance sheets (and their actual homes), 80% of pandemic homebuyers say they have “no regrets” and feel happier after their new home purchase.

Real estate professionals are likely to agree. After all, business is booming and most homes have multiple offers the same week of listing. Demand is high and clients are eager to jump in and be part of the action.

But all that glitters is not gold, dear reader, and 2021’s housing market is a prime example.

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Buy a house — if you can

These blissful homebuyers represent just a slice of what’s occurring in the housing market. True, buyer fear of missing out (FOMO) has spurred turbulent competition over the past year, pushing inventory to an historic low and home prices to new heights. But the number of home sales occurring in 2020 and the first half of 2021 were roughly flat with recent years, giving glance to more of a homeowner shuffle than a surge in new demand.

The main source of fuel for the higher prices of the past year has been low interest rates.  Historically low rates have increased buyer purchasing power, enabling buyers to qualify for higher principal amounts with the same (or lower) mortgage payment.

Many high-income households have also received a boost to their finances, in the form of automatically deferred student loan payments. Still others have been able to work remotely, saving on commuting costs and allowing them to move further away from their jobs, where housing is less expensive. Both of these trends are temporary, and mostly benefit a limited number of households at the higher end of the income scale.

Further, while still relatively low, fixed rate mortgage (FRM) rates have risen from historic lows in 2021, removing support for buyer purchasing power and home prices.

Worse, the expiration of the foreclosure moratorium at the end of July 2021 is beginning release the buildup of inventory. When delinquent homeowners find themselves needing to resume payments or else face foreclosure, many will choose a forced sale. This surge in inventory — led by desperate sellers — is expected to drag down prices heading into 2022.

The forecast is cloudy with a chance of foreclosures

We all know what happens when the music stops: homebuyers will start to realize home prices are at their peak, and the shuffle will stop, too.

Already California real estate professionals are seeing the slowdown begin. Pending home sales have declined 12% from the May 2021 peak through the end of July.

For the homeowners able to improve their housing and their lives during this recession, we say: good for them. But don’t let their happy success stories fool you about the state of the broader housing market. With 1.2 million jobs still missing in California as of July 2021, many renters and homeowners are still unable to make housing payments. Without the support of a full jobs recovery, evictions and vacancies will rise.

Expect to see home sales volume level off and dip heading into 2022, followed by prices. California will need to emerge from the effects of the 2020 recession before the next recovery will occur, anticipated to begin around 2024.

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