Friday, July 24, 2020 / by Vanessa Saunders
By Vanessa Saunders, MBA, MIMC , Broker Owner, Global Property Systems Real Estate.
A sales report released Thursday by Corelogic showed real estate activity in the Hamptons setting an all-time high for the area's median home selling price. Buyers furiously raced to buy properties and drove the median up 27% in the second quarter. All this while the number of transactions fell by 13%, a sure sign that homeowners in New York are holding onto their homes, causing an inventory shortage as they wait for prices to rise further to meet demand. The Hudson Valley reflected similar, if less dramatic price increases as it dealt with its own inventory shortages.
So why are some experts worrying about a price decline this fall?
Curbed, an American real estate and urban design blog network, reported today that the legs beneath the stool keeping prices up may be kicked away come October, affecting prices into 2021. They blame it on the Coronavirus pandemic. Says Curbed, "The belated decline would come as a result of prolonged economic damage and rising uncertainty over the federal government’s long term commitment to the policies that have kept housing markets afloat over the last four months."
What Curbed is trying to explain is that experts fear a spike in delinquencies and foreclosures as a number of federal policies enacted since March to stabilize housing markets may end. Without these new policies, there would almost certainly be a wave of foreclosures across the country. Enhanced unemployment benefits in the CARES Act and federal forbearance options for borrowers with Freddie Mac, Fannie Mae, or Ginny Mae financing, are the legs on the stool that kept unemployed homeowners from going into foreclosure.
But now, the unemployment benefits in the CARES Act expire on July 31. That's one leg of the stool kicked out. The second leg is the uncertainty that any of the other benefits in CARES will continue past that date. If these programs go away, a wave of foreclosures would inevitably occur, and the sudden rush of supply could exceed demand to the point that it pushes home prices into free fall, as we saw happen in 2008. So much for leg number three on the prices stool.
Government policy is key to prices this fall and into 2021. Variables such as the results of the election this fall could potentially spark a dramatic change in the way the federal government responds to the pandemic. For now, congress is still deeply divided on what to do.
Time will tell how long the pricing stool will stand.
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