Many seem to be waiting on bated breath for signals of an economic recession, reading into even seemingly positive headlines with apprehension and signs of another recession that mimics that of 2008.
Others insist we are not on the cusp of economic doom and are unlikely to see a recession, especially one with such vast implications in the housing market as the last. Are we so preoccupied with these broad trends that we are missing something already transpiring?
Perhaps this is the case.
Daren Blomquist, VP of Market Economics at Auction.com, said in an article this week, “With so much focus on monitoring for the launch of another economic recession, an emerging home price correction could be taking flight under the radar.”
Home price correction is already transpiring, and the industry is beginning to see some weakening of the housing market.
According to a December report from BuildFax, the chance of an impending economic recession peaked in September of last year and was down to 42% by the end of the year.
However, home prices are expected to decline in one quarter of local real estate markets, according to the 2020 Housing Forecast from realtor.com. At the national level, prices will increase just 0.8%, while prices in some previously hot markets will decline.
Blomquist emphasized that “these local market declines won’t be driven by an economic recession or by destined-to-fail mortgage products, but by migration patterns triggered in large part by buyers chasing affordability—a trend that was already evident in 2019.”
Already 13% of local markets posted annual price declines in Q3 2019, according to Auction.com’s analysis of data from ATTOM Data Solutions. Several higher-priced markets were among those that posted price declines.
For example, prices in Bridgeport, Connecticut, dropped 4.8% over the year in Q3 2019, while prices in San Jose, California, dropped 3.2%.
The nation is beginning to see new migration patterns that follow affordability. Already, some expensive markets, especially along the west coast, are experiencing new migration trends as residents leave to pursue more affordable housing elsewhere.
On the other hand, markets in Arizona, Nevada, and Texas are experiencing an influx of residents leaving expensive markets in California, according to realtor.com. At the same time, residents from expensive markets in the Northeast are seeking affordable options in the Carolinas, Georgia, and Florida.
“The move to affordability trend will continue in 2020, fueled by the twin forces of Baby Boomers retiring and seeking sunnier weather, lower taxes and lower cost of living, and Millennials searching for family-friendly lifestyles and affordable housing,” according to realtor.com.
While slowing and depreciating home prices may help bring affordability to some markets, Blomquist also pointed out some negative effects, including lower home equity and a potential for an uptick in home loan defaults.
He pointed out that homeowners often rely on home equity as a “safety net” in the case of a loan default. Particularly, recent homebuyers with loans backed by the Federal Housing Administration may be vulnerable as they have little or no equity at their disposal.
Total “tappable equity” is now on the decline, falling 1% in Q3 2019. However, it was still up 5% from a year earlier, according to data from Black Knight.
Another recent market development that can make the market vulnerable is the large sales of non-performing loans. About 42% of former GSE loans sold in NPL sales have fallen into foreclosure, and another 24% remain unresolved.