May’s Home Price Index and Home Price Forecast is not great, but could be worse. CoreLogic is a company that provides information to help clients make smart and educated decisions. In a CoreLogic report, home prices are expected to decrease by 6.6% by May of 2021. In their press release, CoreLogic said, “The anticipated impacts of the recession are beginning to appear across the housing market.” Prices up until now have been strong, but is likely short lived since home prices are dropping supposedly in 2021.
CoreLogic President and CEO Frank Martell said, “Pent-up buyer demand was delayed from spring to summer and is reflected in the latest price data, but with elevated unemployment, purchase activity and home prices could fall off after summer.”
In short, this could be a harbinger of some tough times as the housing market was one of the positive aspects of the economy with generally strong demand for homes even with COVID-19 acting as a drag.
While we can expect softening in the markets throughout the country, some areas will see larger impact. According to the CoreLogic report, Florida and Arizona will be hit hard, because they “faced the perfect storm of elevated COVID-19 cases and the subsequent collapse of the spring and summer tourism market”. The report added, “While harder-hit areas may also experience a slower rebound, the preservation of factors like low mortgage interest rates and a shortage of for-sale supply have already supported prices in some metros and may also encourage home price stabilization nationwide.”
As Home Prices Drop, What Should You Expect If You’re Selling?
If you are selling, this means that you should be prepared for some reality checks on your expectations. Lower prices and fewer offers are likely a very real possibility. Truing up expectations with reality can be difficult, but it is definitely the time to do so. Re-evaluating a listing price is more than just a good idea, but an essential aspect of selling. Additionally, as with any competitive housing market, you should make every effort to make your home as marketable as possible. Listen to your realtor when it comes to showing and pricing. If you need to sell due to a court order, such as a divorce, you need to consider the real possibility that the projected price decrease could be the tip of the iceberg and that we could face deeper price declines later in 2021 and beyond.
Home Prices Dropping is Good News If You’re Buying a New Home
Rates are still at record lows and this market shift opens the possibility of some real bargains. As with any market, your pre-approval is key and it is imperative that you keep it up to date. The same forces that are pushing prices down are pushing lenders to be more conservative in their lending guidelines. You ability to buy a property or the amount that you could afford may change, so make sure that you are communicating regularly with your lender. This will also allow you to move more quickly when you find a home and, in a market when sellers are motivated, you want to be able to close quickly if needed.
Do Not Wait To Refinance Your Home
Rates are extremely low right now and the value of your home may be at a temporary high point. Remember, the value assigned to your home will be based on an appraisal of recent sales. If the price of homes around you is dropping, that will have a negative impact on the value of your home. Lower value can lead to less favorable terms and, in the most extreme cases, an inability to get your loan approved.
As with court ordered sales, splitting homeowners need to closely manage any refinances associated with divorce. During times of volatility the divorcing parties will, no doubt, need to re-evaluate the situation. In any divorce, the spouse retaining the home will want to minimize the home value to decrease the size of an equity buyout and the departing spouse will want to maximize it. This tug-of-war is amplified in time of volatility. In may practice, I recommend that the value be determined by disinterested 3rd parties that can negate some of these competing demands, but all parties need to be objective and realistic.
Dropping Home Prices Is Out of Your Control
So this is scary stuff, right? Only if you let it be. There is always going to be negative forces impacting your housing and mortgage decisions. Sometimes these will be more prominent than others, but timing is very difficult if not impossible. It is important to remember that this is part of a cycle and there are external factors that you cannot control. These best course of action is to integrate all of the available information into your decision process and to hire the best professionals to help you make sense of a volatile and uncertain time.