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2021 Predictions: Rates, Inflation, Housing & Affordability

a man wearing a red shirt sits in a green desk chair at a blue table in his home office and looks up affordability predictions on his laptopI often point out how difficult, impossible and/or ineffective it is to make predictions for anything nowadays.

This is because we are in uncharted waters when it comes to this much Fed and government involvement in our economy, making it impossible for anyone to predict accurately b/c there are no precedents to rely on.

BUT – there is one gentleman who seems to predict correctly far more often than not, and that would be Barry Habib, CEO and founder of MBS Highway.

He has been so accurate in recent years that he has won two “Crystal Ball” awards for his predictions (something he reminds us about often 😊).

Because of Habib’s accuracy, I for one, tend to listen when he makes prognostications, and last Friday was no exception when Barry hosted a paid seminar to discuss the most pressing topics in the mortgage and real estate realms.

Below is a brief summary of his recent opinions.

INTEREST RATES DOWN AGAIN

Habib still thinks rates will come down again later in the year, primarily because he thinks inflation fears are overstated (discussed below). He also thinks the economy will slow down again once the stimulus effects wear off.

INFLATION LESS OF A CONCERN

  1. Broken Supply Chains: Habib thinks inflation fears are overblown because much of the inflation we see now is a result of COVID-related broken supply chains.

Whether it is prescription drugs, lumber, or basic food stuffs, most goods are more expensive now because COVID restrictions have created so many bottlenecks and increased costs significantly.

Here is an excellent article explaining how this works.

In any case, once most of the nation is vaccinated and COVID concerns abate, supply chains will be restored and prices will fall, per Habib.

BULLISH ON HOUSING STILL – DEMAND WILL EXCEED SUPPLY

  1. Demographics & Inventory: Habib loves housing still and is not worried about a major correction for one primary reason: demographics, coupled with low inventories. Habib again pointed out how we are seeing record numbers of millennials just now hitting peak homebuying age (early 30s). In contrast, in 2008, the number of potential buyers in the early 30s age group hit a record low, greatly exacerbating the housing crisis. In addition, prior to the 2008 meltdown, builders were building at more than twice the rate at which they are building now to satisfy speculator demand, so inventory levels were far higher in general than they are now.
  2. Forbearances: Habib is not as worried about the massive number of people in “forbearance” (who are not paying their mortgages) as are many other pundits – who think that most of the people in forbearance will either end up selling or losing their homes, creating a massive surge in inventory. Habib thinks this fear is overstated because many people are only in forbearance as a cautionary measure (they can still afford their mortgages) and many people will do whatever is necessary to keep their homes because they have so much more equity than they did in 2008.

MEDIAN HOUSING PRICES MISLEADING

“Median” house price reports often scare people into thinking that we are seeing runaway housing appreciation.

BUT, as we all learned in high school, the “median” (the mid selling point) is not the “average” and an increase in the median housing price often just means Americans are buying larger and more expensive houses on average.

The median price increased far faster last year than the average price, partially because builders are building bigger and bigger homes (because they are more profitable) and because many buyers were looking for larger homes in general because they are more suitable for post-COVID living.

AFFORDABILITY CONCERNS OVERBLOWN

Habib also makes the case that affordability concerns are overblown because incomes continue to rise faster than average housing payments, even with the major appreciation we are seeing.

Habib makes the case that we need to focus on weekly earnings (instead of hourly earnings like the media often does) because those numbers reflect actual incomes, and we need to focus on average housing payments instead of housing prices.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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