Housing Market Insights By Nik Shah (Home.LLC)

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🏡 3 Metrics That Will Help You Predict The Next Housing Market Crash 📉
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🏡 3 Metrics That Will Help You Predict The Next Housing Market Crash 📉

Will home prices fall in 2022?

Nik Shah
Oct 1, 2021
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When will the US housing market crash?

Some people are predicting a crash in 2022. Others say that the housing market is in great shape.

In this post, we look at 3 metrics that you can use to predict the next housing recession.


1. High Default Rates

Why? High defaults lead to an over-supply of inventory.

In the lead-up to 2008’s Great Recession, lots of homeowners defaulted on their mortgages. Banks were forced to put these homes up for sale. This increased the supply of homes, and pushed prices down.

However, we’re unlikely to see high default rates in 2022

At the height of the Great Recession, 5% of total mortgages were seriously delinquent. Right now, only 0.5% of mortgages are in the same category.

Very few homeowners are at risk of default.

Mortgage delinquency rate - >90 days delinquent.
Analysis by Home.LLC. Sources: CFPB.

Why has there been such a huge reduction in defaults?

Lenders have learnt their lessons from the 2008 recession. Banks and other financial institutions have tightened their underwriting practices since then.

Lending standards have been really tight for the last 10 years, and are unlikely to change anytime soon.

Mortgage lending standards.
Analysis by Home.LLC. Sources: MBA.

To sum up:

  • High defaults can lead to a crash in home prices

  • The likelihood of high defaults in the next few months is very low


2. High For-Sale Inventory

Home prices are a factor of demand and supply. If too many homes come up for sale, the housing market could be in trouble.

What is the likelihood of a housing crash due to an over-supply of inventory in 2022?

Almost none. There just aren’t enough homes available for sale!

Total housing inventory.
Analysis by Home.LLC. Sources: Census Bureau, NAR.

Housing inventory is very low, especially when compared to long-term historical trends. (We explained why in a previous edition of this newsletter.)

Economists at Freddie Mac believe that the US housing market faces a supply shortage of 3.8 million homes. NAR researchers go further - they think the housing market is under-supplied by 5.5 million!

Will the end of forbearance increase housing inventory?

The federal forbearance program had allowed homeowners to pause their mortgage payments, because of the economic downturn caused by Covid-19. This program ended on September 30, and 1.5 million homeowners are still behind on their loans. Will they be forced to sell their properties?

Fortune Magazine asked us the same question back in July. Our answer - not really. And here’s the main reason why: Home Equity.

Home Equity is the difference between what your home is currently worth, and the amount you owe on your mortgage. Home prices have risen 19.7% over the last 12 months. Currently, most homeowners have enough equity in their homes to work out a solution with their lender. This will help them avoid defaulting on their mortgage.

Home equity.
Analysis by Home.LLC. Sources: Federal Reserve.

However, some markets are at high risk!

Boise City, Austin and metro areas in Florida are issuing permits at a furious pace! These markets could see home prices cool down or even decline in the next few years, if demand does not increase at the same rate.

Building permits per 1000 residents.
Analysis by Home.LLC. Sources: Census Bureau.

3. Lack of Demand

Low demand is as big of a risk to the housing market, as high supply.

If demand for homes goes down, then sellers will be forced to reduce prices in order to force a sale, which can lead to a housing crash.

How was housing demand changed?

Housing demand has been increasing for the last 10 years. Sales have increased by 200K/month from 2011 to 2021.

SIngle family home sales.
Analysis by Home.LLC. Sources: Census Bureau, NAR.

What about future demand for homes?

There is likely to be strong demand for homes in the future.

Millennials and Gen Zs together make up 50% of the population in the United States.

And researchers at Urban Institute predict that they will increase their homeownership rate from 46% in 2020 to 64% in 2040.


In summary - the likelihood of a housing crash in 2022 is very low in most markets.

However, markets like Boise City & Austin are risky because of potential over-supply from a flood of construction.


Home.LLC works with WSJ for a Story on Idaho’s Housing Market

Twitter avatar for @WSJThe Wall Street Journal @WSJ
Idaho is in the midst of a ski renaissance, and so is its real-estate market: Home prices have grown 42% in the past two years—twice the national average and the highest of all the states.
The Beauty of Buying a Ski Home in Idaho? Nobody Knows a Thing About ItNot typically regarded as a high-end ski destination, the state is attracting a wave of home buyers who want smaller resorts, shorter lift lines and a more low-key, laid-back vibeon.wsj.com

October 1st 2021

7 Retweets46 Likes

Idaho’s housing market is on fire! Home sales have exploded over the past two years, and home prices have grown twice as fast as in the rest of the US.

These are some of the insights Home.LLC helped Nancy Keates of The Wall Street Journal uncover in her fantastic feature on Idaho’s ski towns. Give it a read here.


Featured Interview: Pranav Bhakta dives deep into Hospitality

Pranav Bhakta.

Pranav Bhakta entered his family business at the age of 13. Now he manages the data-driven hospitality firms Revelo Hospitality and Bhakta Capital, and has helped set up hospitality verticals for family offices worldwide. Here’s what he told us in an exclusive interview.

Pranav’s life motto:

As my father used to tell the young eight years old me, “The currency of every culture is relationships.” I wholeheartedly believed and carried that message with me and watched it grow into my motto in all affairs, be it personal or professional.

The impact technology will have on real estate over the next decade:

Real estate is a very dominant logic industry; it does not spur innovation to real property. How do we deliver top-line revenues and bottom-line profits to increase the capitalization of that efficiency so that every dollar gets capitalized to value? The answer is technology.

Check out Pranav’s vision for how new-age hospitality companies can leverage technology to deliver massive risk-adjusted returns here!

Read more about the perspectives of leading real estate family offices and fund managers at home.llc/interviews.


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