With the strength of the current housing market growing every day and more Americans returning to work, a faster-than-expected recovery in the housing sector is already well underway. Regardless, many are still asking the question: will we see a wave of foreclosures as a result of the current crisis? Thankfully, research shows the number of foreclosures is expected to be much lower than what this country experienced during the last recession. Here’s why.
According to Black Knight Inc., the number of those in active forbearance has been leveling-off over the past month (see graph below):Black Knight Inc. also notes, of the original 4,208,000 families granted forbearance, only 2,588,000 of these homeowners got an extension. Many homeowners have once again started to pay their mortgages, paid off their homes, or never went delinquent on their payments in the first place. They may have applied for forbearance out of precaution, but never fully acted on it (see graph below):The housing market, and homeowners, therefore, are in a much better position than many may think. Much of that has to do with the fact that today’s homeowners have more equity than most realize. According to John Burns Consulting, over 42% of homes are owned free and clear, meaning they are not tied to a mortgage. Of the remaining 58%, the average homeowner has $177,000 in equity. That number is keeping many homeowners afloat today and giving them options to avoid foreclosure.
While ATTOM Data Solutions indicates that there is a potential for the number of foreclosures to increase throughout the country, it’s important to understand why they won’t rock the housing market this time around:
“The United States faces a possible foreclosure surge over the coming months that could more than double the number of households threatened with eviction for not paying their mortgages.”
That number may sound massive, but it is actually much smaller than it seems at first glance. Today’s actual quarterly active foreclosure number is 74,860. That’s over 7.5x lower than the number of foreclosures the country saw at the peak of the housing crash in 2009. When looking at the graph below, it’s clear that even if the number of quarterly foreclosures today doubles, as ATTOM Data Solutions indicates is a possibility (not a given), they will only reach what historically-speaking is a normalized range, far below what up-ended the housing market roughly 10 years ago.Equity is growing, jobs are returning, and the economy is slowly recovering, so the perfect storm for a wave of foreclosures is not realistically in the housing market forecast. As Odeta Kushi, Deputy Chief Economist for First American notes:
“Alone, economic hardship and a lack of equity are each necessary, but not sufficient to trigger a foreclosure. It is only when both conditions exist that a foreclosure becomes a likely outcome.”
While our hearts are with anyone who may end up in foreclosure as a result of this crisis, we do know that today’s homeowners have more options than they did 10 years ago. For some, it may mean selling their house and downsizing with that equity, which is a far better outcome than foreclosure.
Homeowners today have many options to avoid foreclosure, and equity is surely helping to keep many afloat. Even if today’s rate of foreclosures doubles, it will still only hit a mark that is more in line with a historically normalized range, a very good sign for homeowners and the housing market.
Ten million Americans lost their jobs over the last two weeks. The next announced unemployment rate on May 8th is expected to be in the double digits. Because the health crisis brought the economy to a screeching halt, many are feeling a personal financial crisis. James Bullard, President of the Federal Reserve Bank of St. Louis, explained that the government is trying to find ways to assist those who have lost their jobs and the companies which were forced to close (think: your neighborhood restaurant). In a recent interview he said:
“This is a planned, organized partial shutdown of the U.S. economy in the second quarter. The overall goal is to keep everyone, households and businesses, whole.”
That’s promising, but we’re still uncertain as to when the recently unemployed will be able to return to work.
Another concern: how badly will the U.S. economy be damaged if people can’t buy homes?
A new concern is whether the high number of unemployed Americans will cause the residential real estate market to crash, putting a greater strain on the economy and leading to even more job losses. The housing industry is a major piece of the overall economy in this country.
Chris Herbert, Managing Director of the Joint Center for Housing Studies of Harvard University, in a post titled Responding to the Covid-19 Pandemic, addressed the toll this crisis will have on our nation, explaining:
“Housing is a foundational element of every person’s well-being. And with nearly a fifth of US gross domestic product rooted in housing-related expenditures, it is also critical to the well-being of our broader economy.”
How has the unemployment rate affected home sales in the past?
It’s logical to think there would be a direct correlation between the unemployment rate and home sales: as the unemployment rate went up, home sales would go down, and when the unemployment rate went down, home sales would go up.
However, research reviewing the last thirty years doesn’t show that direct relationship, as noted in the graph below. The blue and grey bars represent home sales, while the yellow line is the unemployment rate. Take a look at numbers 1 through 4:
- The unemployment rate was rising between 1992-1993, yet home sales increased.
- The unemployment rate was rising between 2001-2003, and home sales increased.
- The unemployment rate was rising between 2007-2010, and home sales significantly decreased.
- The unemployment rate was falling continuously between 2015-2019, and home sales remained relatively flat.
The impact of the unemployment rate on home sales doesn’t seem to be as strong as we may have thought.
Isn’t this time different?
Yes. There is no doubt the country hasn’t seen job losses this quickly in almost one hundred years. How bad could it get? Goldman Sachs projects the unemployment rate to be 15% in the third quarter of 2020, flattening to single digits by the fourth quarter of this year, and then just over 6% percent by the fourth quarter of 2021. Not ideal for the housing industry, but manageable.
How does this compare to the other financial crises?
Some believe this is going to be reminiscent of The Great Depression. From the standpoint of unemployment rates alone (the only thing this article addresses), it does not compare. Here are the unemployment rates during the Great Depression, the Great Recession, and the projected rates moving forward:
We’ve given you the facts as we know them. The housing market will have challenges this year. However, with the help being given to those who have lost their jobs and the fact that we’re looking at a quick recovery for the economy after we address the health problem, the housing industry should be fine in the long term. Stay safe.
We’re in a changing real estate market, and life, in general, is changing too – from how we grocery shop and meal prep to the ways we can interact with our friends and neighbors. Even practices for engaging with agents, lenders, and all of the players involved in a real estate transaction are changing to a virtual format. What isn’t changing, however, is one key thing that can drive the local economy: buying a home.
We’re all being impacted in different ways by the effects of the coronavirus. If you’re in a position to buy a home today, know that you’re a major economic force in your neighborhood. And while we all wait patiently for the current pandemic to pass, there are a lot of things you can do in the meantime to keep your home search on track.
Every year the National Association of Realtors (NAR) shares a report that notes the full economic impact of home sales. This report summarizes:
“The total economic impact of real estate related industries on the state economy, as well as the expenditures that result from a single home sale, including aspects like home construction costs, real estate brokerage, mortgage lending and title insurance.”
Here’s the breakdown of how the average home sale boosts the economy:When you buy a home, you’re making an impact. You’re fulfilling your need for shelter and a place to live, and you’re also generating jobs and income for the appraiser, the loan officer, the title company, the real estate agent, and many more contributors to the process. For every person or business that you work with throughout the transaction, there’s also likely a team behind the scenes making it all happen, so the effort multiplies substantially. As noted above in the circle on the right, the impact is almost double when you purchase new construction, given the extra labor it requires to build the home.
The report also breaks down the average economic impact by state:As a buyer, you have an essential need for a home – and you can make an essential impact with homeownership, too. That need for shelter, comfort, and a safe place to live will always be alive and well. And whenever you’re able to act on that need, whether now or later, you’ll truly be creating gains for you, your family, local business professionals, and the overall economy.
Whenever you purchase a home, you’re an economic driver. Even if you’re not ready or able to make a move now, there are things you can do to keep your own process moving forward so you’re set when the time is right for you. Let’s connect to keep your home search – and your local contributions – on track.
The last few weeks and months have caused a major health crisis throughout the world, leading to a pause in the U.S. economy as businesses and consumers work to slow the spread of the coronavirus. The rapid spread of the virus has been compared to prior pandemics and outbreaks not seen in many years. It also has consumers remembering the economic slowdown of 2008 that was caused by a housing crash. This economic slowdown, however, is very different from 2008.
One thing the experts are saying is that while we’ll see a swift decline in economic activity in the second quarter, we’ll begin a sharp rebound in the second half of this year. According to John Burns Consulting:
“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices), and some very cutting-edge search engine analysis by our Information Management team showed the current slowdown is playing out similarly thus far.”
Given this situation, if you’re thinking about buying a home this year, the best thing you can do right now is use this time to get pre-approved for a mortgage, which you can do from the comfort of your home. Pre-approval will help you better understand how much you can afford so that you can confidently do the following two things when you’re ready to buy:
1. Gain a Competitive Advantage
Today’s low inventory, like we’ve seen recently and will continue to see, means homebuyers need every advantage they can get to make a strong offer and close the deal. Being pre-approved shows the sellers you’re serious about buying a home, which is always a plus in your corner.
2. Accelerate the Homebuying Process
Pre-approval can also speed-up the homebuying process so you can move faster when you’re ready to make an offer. Being ready to put your best foot forward when the time comes may be the leg-up you need to cross the finish line first and land the home of your dreams.
Pre-approval is the best thing you can do right now to be in a stronger position to buy a home when you’re ready. Let’s connect today to get the process started.
As our lives, our businesses, and the world we live in change day by day, we’re all left wondering how long this will last. How long will we feel the effects of the coronavirus? How deep will the impact go? The human toll may forever change families, but the economic impact will rebound with a cycle of downturn followed by economic expansion like we’ve seen play out in the U.S. economy many times over.
Here’s a look at what leading experts and current research indicate about the economic impact we’ll likely see as a result of the coronavirus. It starts with a forecast of U.S. Gross Domestic Product (GDP).
According to Investopedia:
“Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of the country’s economic health.”
When looking at GDP (the measure of our country’s economic health), a survey of three leading financial institutions shows a projected sharp decline followed by a steep rebound in the second half of this year:A recent study from John Burns Consulting also notes that past pandemics have also created V-Shaped Economic Recoveries like the ones noted above, and they had minimal impact on housing prices. This certainly gives hope and optimism for what is to come as the crisis passes.
With this historical analysis in mind, many business owners are also optimistic for a bright economic return. A recent PricewaterhouseCoopers survey shows this confidence, noting 66% of surveyed business owners feel their companies will return to normal business rhythms within a month of the pandemic passing, and 90% feel they should be back to normal operation 1 to 3 months after:From expert financial institutions to business leaders across the country, we can clearly see that the anticipation of a quick return to normal once the current crisis subsides is not too far away. In essence, this won’t last forever, and we will get back to growth-mode. We’ve got this.
Lives and businesses are being impacted by the coronavirus, but experts do see a light at the end of the tunnel. As the economy slows down due to the health crisis, we can take guidance and advice from experts that this too will pass.
- Expert insights are painting a bright future for housing when the economy bounces back – and it will.
- We may be facing challenging economic times today, but the housing market is poised to help the economy recover, not drag it down.
- Let’s connect to make sure you’re informed and ready when it’s time to make your move.
With the housing crash of 2006-2008 still visible in the rear-view mirror, many are concerned the current correction in the stock market is a sign that home values are also about to tumble. What’s taking place today, however, is nothing like what happened the last time. The S&P 500 did fall by over fifty percent from October 2007 to March 2009, and home values did depreciate in 2007, 2008, and 2009 – but that was because that economic slowdown was mainly caused by a collapsing real estate market and a meltdown in the mortgage market.
This time, the stock market correction is being caused by an outside event (the coronavirus) with no connection to the housing industry. Many experts are saying the current situation is much more reminiscent of the challenges we had when the dot.com crash was immediately followed by 9/11. As an example, David Rosenberg, Chief Economist with Gluskin Sheff + Associates Inc., recently explained:
“What 9/11 has in common with what is happening today is that this shock has also generated fear, angst and anxiety among the general public. People avoided crowds then as they believed another terrorist attack was coming and are acting the same today to avoid getting sick. The same parts of the economy are under pressure ─ airlines, leisure, hospitality, restaurants, entertainment ─ consumer discretionary services in general.”
Since the current situation resembles the stock market correction in the early 2000s, let’s review what happened to home values during that time.The S&P dropped 45% between September 2000 and October 2002. Home prices, on the other hand, appreciated nicely at the same time. That stock market correction proved not to have any negative impact on home values.
If the current situation is more like the markets in the early 2000s versus the markets during the Great Recession, home values should be minimally affected, if at all.
- The COVID-19 pandemic is causing an economic slowdown.
- The good news is, home values actually increased in 3 of the last 5 U.S. recessions and decreased by less than 2% in the 4th.
- All things considered, an economic slowdown does not equal a housing crisis, and this will not be a repeat of 2008.
With all of the havoc being caused by COVID-19, many are concerned we may see a new wave of foreclosures. Restaurants, airlines, hotels, and many other industries are furloughing workers or dramatically cutting their hours. Without a job, many homeowners are wondering how they’ll be able to afford their mortgage payments.
In spite of this, there are actually many reasons we won’t see a surge in the number of foreclosures like we did during the housing crash over ten years ago. Here are just a few of those reasons:
The Government Learned its Lesson the Last Time
During the previous housing crash, the government was slow to recognize the challenges homeowners were having and waited too long to grant relief. Today, action is being taken swiftly. Just this week:
- The Federal Housing Administration indicated it is enacting an “immediate foreclosure and eviction moratorium for single family homeowners with FHA-insured mortgages” for the next 60 days.
- The Federal Housing Finance Agency announced it is directing Fannie Mae and Freddie Mac to suspend foreclosures and evictions for “at least 60 days.”
Homeowners Learned their Lesson the Last Time
When the housing market was going strong in the early 2000s, homeowners gained a tremendous amount of equity in their homes. Many began to tap into that equity. Some started to use their homes as ATM machines to purchase luxury items like cars, jet-skis, and lavish vacations. When prices dipped, many found themselves in a negative equity situation (where the mortgage was greater than the value of their homes). Some just walked away, leaving the banks with no other option but to foreclose on their properties.
Today, the home equity situation in America is vastly different. From 2005-2007, homeowners cashed out $824 billion worth of home equity by refinancing. In the last three years, they cashed out only $232 billion, less than one-third of that amount. That has led to:
- 37% of homes in America having no mortgage at all
- Of the remaining 63%, more than 1 in 4 having over 50% equity
Even if prices dip (and most experts are not predicting that they will), most homeowners will still have vast amounts of value in their homes and will not walk away from that money.
There Will Be Help Available to Individuals and Small Businesses
The government is aware of the financial pain this virus has caused and will continue to cause. Yesterday, the Associated Press reported:
“In a memorandum, Treasury proposed two $250 billion cash infusions to individuals: A first set of checks issued starting April 6, with a second wave in mid-May. The amounts would depend on income and family size.”
The plan also recommends $300 billion for small businesses.
These are not going to be easy times. However, the lessons learned from the last crisis have Americans better prepared to weather the financial storm. For those who can’t, help is on the way.