The Housing Market Just Went ABSURD

What's up, guys? It's Graham here!

So, as I'm sure you're all aware, the housing market is absolutely bonkers. It was just revealed that housing prices have hit yet another record all-time high, rising 17% year-over-year. Buyers are paying a million dollars over asking in hot markets, offering up a Caribbean vacation just to get an offer accepted. They are even volunteering to name their first born child after the seller if that gives them an edge! Those, by the way, are all true stories.

But now, the housing madness is going a little bit further because we've got this: beginning August 1st, the national eviction ban officially expires, leaving tenants at risk of being displaced from their homes. At the same time, the foreclosure memorandum also expires when mortgage forbearance options start coming to an end in September. This means we're leading up to the moment that so many analysts have warned about, including the impending wave of foreclosures. Millions are at risk of eviction, and there's this woman who deliberately ran 49 red lights in her ex-boyfriend's car to rack up fines because he left her for another woman. But more on that later.

Okay, but seriously, let's talk about exactly what's going on, what this means for the future of the real estate market, whether or not this is actually something to worry about, and if the housing boom is actually over. And then we have to answer the question: are millennials ruining the housing market by using their pandemic savings to overpay for real estate, as Business Insider suggests? Well, all of that and more on this episode! If we could get this video to 50,000 likes, I will eat and drink only Starbucks for an entire week. I'm being 100% serious! If you guys want to see that happen, all it's going to cost you is just one like on the video.

All right, so as a quick background, here's what's going on. During the start of the pandemic, as everything shut down, several provisions were put in place to help both homeowners and tenants from being displaced from their homes. For tenants, this included an eviction memorandum that prevented them from being evicted due to non-payment of rent. Now, originally, this provision was only meant to last a few months and expire on May 31st, 2020. But as it became clear that the economy was still in a very precarious position, that eviction ban was continually extended over and over every several months until now, where it's officially set to expire on July 31st, 2021. And then tenants are on their own.

The same predictions were also offered to homeowners under a foreclosure memorandum that prevented banks from taking property owners to court over non-payment of their mortgage. In addition to that, they were also offered what's called mortgage forbearance, which allows them to temporarily defer their mortgage payments for up to a year, at which point they'll either need to make up for all the missed payments or apply those missed payments to the end of the loan. Both of those provisions were meant to prevent further financial hardship for anyone impacted by the illness at no fault of their own.

And in the process, at the peak, nearly 5 million homeowners claimed forbearance, and almost 11 million tenants were at risk of foreclosure. Now, unfortunately, these provisions were heavily criticized for simply kicking the can further down the road and never really solving the root cause of the issue, but it did postpone the inevitable. Eventually, this is a crisis that we will have to deal with, and at the end of the day, both homeowners and tenants are responsible for making up the payments they missed.

That's worrying to some people who now say that as these provisions expire, 1.75 million homeowners are still under active forbearance without making a payment, and 5.7 million households are behind on rent, meaning that very shortly millions of people could be impacted, along with the entire real estate market. As more homes come on the market, lower values. But of course, we can't just take this at face value and assume it's correct. So here's what's really going on and how this could actually impact the real estate market.

Well, CNBC just ran an article recently saying that the housing boom is over, as new home sales fall to pandemic low, indicating that maybe the market is beginning to soften. But for all of you potential home buyers out there, don't rejoice quite yet! It's really important to realize that anytime you hear the phrase "home sales hitting a low," that is an entirely different meaning than home prices. See, home sales are counted by the total number of homes sold, not necessarily what they sold for.

In falling home sales, only mean one of three things. First, that could indicate record low inventory, as fewer people list their homes for sale. Second, that could mean that home builders are having a more difficult time sourcing labor and materials, meaning they're not building as much as they once were, and therefore fewer homes could be sold. Or third, prices are reaching a tipping point where buyers are outpriced and can't afford the home they want to get.

Well, in this case, guess what? The price of new construction homes is actually up another six percent from a year ago, while at the same time inventory of new homes increased from a five-and-a-half month supply in May to a 6.3 month supply in June, meaning that more homes are coming on the market, but they're still selling for a higher price than they were previously.

The issue, CNBC says, is that low sales numbers are due to rising construction costs, which limit the builders' ability to construct new homes as fast as they would like, and forces them to list at a higher price, meaning fewer people can afford them and, therefore, sales decline. In response to this, Zillow says that we are shifting our tone in the housing market based on our analysis of proprietary data showing early signs of a cooldown. That doesn't apply to just new construction homes either; regular home sales have also declined another 1.9% year-over-year, leading the realtor chief economist to say that buyers are still interested and want to own a home, but record high home prices are causing some to retreat.

That's during a time where, like I mentioned, home prices are up 17% in the last year, which could signal that maybe the market is beginning to slow down. In fact, we could even see that throughout the United States, the number of homes on the market has finally started to increase for the first time in a year. But when you combine that with the expiration of the foreclosure and eviction memorandum, could that open up the possibility for another housing crisis, like some experts have warned?

But this point, with eviction and foreclosure memorandums expiring, we should address the concerns that the next housing crisis is on the horizon. Evictions could start coming in a matter of days when more than 10 million Americans are behind in rent, and how a surplus of homes could suddenly come on the market from homeowners unable to pay their mortgage, which are all reasonable worries.

So let's start with the end of the eviction memorandum, which expired on August 1st and leaves 15 million people vulnerable to eviction. Now, even though this applies to the majority of the U.S. states, like California and New York have extended the eviction memorandum through the end of September, and Washington DC evictions can't resume until October 12th, with 60 days advance notice for the tenant to get caught up.

But in terms of exactly how many tenants are truly at risk of eviction, there is not one single verifiable source of information that gives us that amount. Like the National Multifamily Housing Council shows that overall about two percent fewer tenants pay their rent in full by the end of the month when compared with 2019. And if there are 43 million rental households in the U.S., we might be able to extrapolate that approximately 860,000 households are at least 30 days behind on rent, and off that maybe half would be covered under the eviction memorandum, giving us about 430,000 more units vulnerable to eviction than normal.

Now, as for what's normal, in 2016, Zillow reported that there were 2.35 million eviction filings, and they estimated the number would be as high as 2.7 million in 2021, which mostly mirrors the estimate that I gave with an additional 430,000 units subject to eviction. Now, while their data from the U.S. Census Bureau shows that between two and four percent of Americans say they could be evicted from their home in the next two months, that could point to roughly 5 million households being subject to eviction.

But that information is derived from a survey and doesn't necessarily mean they will be evicted. Certainly, five million households being evicted would be devastating. But I have to say, as a landlord myself, evictions like this are always a last case resort. The fact is, evictions are time-consuming and they're expensive. Not to mention, there's no guarantee the landlord is actually going to get paid back the rent that they're due, and no tenant wants that on the record.

So in most of these cases, I have a feeling the tenant will either voluntarily leave or they're going to work out a payment plan with a landlord to stay. It's the National Multifamily Housing Council that's correct—the vast majority of tenants are still paying their rent in full by the end of the month, indicating that maybe some of these numbers are a bit overblown.

The second in terms of the expiring foreclosure memorandum—there's certainly the narrative that a wave of foreclosures is about to hit the economy. But realistically, the number of homeowners in active forbearance has been consistently declining month after month, suggesting that homeowners are resuming their payments and moving on as usual.

Now, for the homeowners who cannot keep making their payments, most likely, they would be able to list and sell their home for a profit and then walk away pocketing the difference. For a home to go into foreclosure, the owner must owe more money to the bank than what the home is actually worth. And right now, with record high prices and record high homeowner equity, only about two percent of all mortgage properties fall into that category. So, the chance of them all going into foreclosure all at the exact same time is just not going to happen.

I would even venture to say that the worst-case scenario here is that we see a small uptick of more homes on the market as people decide to list and sell their homes. But I highly doubt that would be enough to crash the market. In addition to that, there are several provisions put in place right now to prevent things from getting too bad. And if you're curious what that is, here you go!

First, the Federal Housing Administration would offer a no-cost, zero-percent interest loan to the borrower for the amount owed. This would appear as a lien against the house that would not need to be repaid until the home is either refinanced or sold. So hypothetically, homeowners would be able to receive an interest-free loan for the rest of their life, as long as they just resumed their payments as normal and don't sell.

Second, FHA borrowers would also be eligible for loan modification that would extend their loan up to 30 years. This is an option to reduce your monthly payments by as much as 25% by allowing you a longer term to repay the amount you owe.

The third, VA borrowers will now have a chance to get a 40-year loan modification mortgage. That means, for example, that if you have 25 years left on your mortgage and it's $900 a month, you could extend that up to 40 years and then lower your payment down to $700 a month. They also say the VA could purchase some of your unpaid principal balance, further reducing your payments.

But I gotta say, a 40-year mortgage is incredible! If you're able to do that and lock in a low rate, it would be really hard to turn that down.

And fourth, also for USDA loans, they're going to be offering you a loan extension up to 30 years to give you more time to pay. At this point, most lenders are offering loan modification or extension for any owners in forbearance because, like I mentioned, foreclosure is a last case resort.

Now, rental relief is also in the works, but unfortunately, it tends to be quite restrictive in terms of how and who could get it. Some states are a little bit more clear, but others, like California, require that you pay 25% of your back rent, make less than 80% of the median income, show reduction in income, and comply with a variety of other qualifications in order to be considered. Not to mention, even if you do qualify, landlords are not required to accept that payment.

It also only applies to tenants at immediate risk of eviction and does not cover past debts or loans taken out to keep current with your rent. So, even though rental relief can be available in your area, it's best to check with your specific county because every place is going to be different.

So overall, even though we have quite a few new changes taking place over the next month, it does not appear that the expiring eviction and foreclosure memorandum are going to have a meaningful impact on the entire real estate market. Instead, I do think we're beginning to see the housing market start to return to normal, with more inventory coming on the market along with prices rising at a somewhat slower rate. To me, that's a signal that perhaps buyers are reaching a point where they simply can't afford to pay anymore.

And as the cost of materials begins to come down and normalize, we should start to see more consistent pricing throughout the market.

Now, for wealthy millennials, it was said that the shutdown allowed them to save way more money than usual, which Business Insider says helped drive the 2020 housing boom and worsen the crisis. But that could only last for so long until eventually, things slow down.

I have a feeling this could last another 6 to 12 months as inventory and interest rates continue to stay low. But until then, the best thing we could do is keep an eye on the housing inventory, see if home prices rise at a slower rate, and then smash the like button for the YouTube algorithm.

So, with that said, you guys, thank you so much for watching! I really appreciate it. As always, make sure to destroy the subscribe button and the notification bell. Also, feel free to add me on Instagram—I post pretty much daily. So if you want to be a part of it there, feel free to add me!

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Thank you so much for watching, and until next time!