A correction is coming to the real estate market and I expect to see it early next year. Each downturn is very similar to the next. We have high unemployment, and housing prices that are extremely inflated. Yet, people keep asking me, “how can you say it’s going to crash when prices are skyrocketing? If I keep waiting, I’m going to miss out on the buying opportunity!” So let me put a few things into perspective for you. This is a supply and demand issue. That is what inflates and deflates prices: inventory versus demand for housing.
First, let’s discuss supply. You have the supply of properties being lowered for a couple of reasons. Reason one is that many people are afraid to move right now. They’re either reluctant because of COVID itself, or they’re staying put until they feel more secure about their job or income. Reason two is that banks are providing one year of mortgage forbearance. This means the owner does not have to pay their mortgage for one year, and the balance goes on the back end of the loan. If someone is out of work and the bank is now allowing them to live mortgage free for one year (until April 2021) that person is most likely going to take the forbearance and hope they return to work within that timeframe.
Now let’s discuss demand. Demand is about the same and possibly a bit higher with people trying to relocate from a larger city now that they can work remotely, but these buyers are competing for a limited supply, which is what is elevating prices.
Next year I see this house of cards falling. Banks can’t keep giving forbearance on mortgages and I believe that a lot of people will still be out of work. When this happens, the market will be flooded with inventory, which will spur prices to fall. I explain all of this in greater detail in this video.