How The Coronavirus Is Impacting The Housing Market

BREAKING NEWS: How The Coronavirus Is Impacting The Housing Market

How The Coronavirus Is Impacting The Housing Market
Gustan Cho Associates

Most Americans are concerned about How The Coronavirus Is Impacting The Housing Market in 2020 and the years to come.

  • Until the coronavirus outbreak back in December 2019, the US economy was booming
  • Unemployment numbers were at a 50-year low
  • Unemployment rates fell below 3.5%
  • The Dow Jones Industrial Average broke 29,000
  • That is the highest for the Dow Jones
  • Other equity markets followed
  • Consumers were making and spending money
  • Economic numbers were increasing quarter after quarter
  • The February 2020 job numbers came in at an astonishing 273,000
  • The housing market was booming
  • Home prices were increasing year after year that both the FHFA and HUD had to increase maximum loan limits on Conventional and FHA loans
  • The United States had an 11-year bull market run
  • Then the coronavirus outbreak hit the United States and Hell broke loose
  • Never in US history did we have a record great economy come crashing down as it did
  • The 2020 housing market was promising but how the coronavirus is impacting the housing market is changing daily
  • There are many unanswered questions
  • Are we headed into a recession?
  • Are we going to go through another 2008 financial crisis?
  • Are we going to have a housing market crash?

In this breaking news article, we will discuss and cover How The Coronavirus Is Impacting The Housing Market.

How The Coronavirus Is Impacting The Housing Market And Mortgage Lending

The housing market was strong at the beginning of the year. However, the coronavirus pandemic fears and the economic crash has changed that.

  • Many homebuyers are worried about getting laid off due to the economic impact of the coronavirus
  • What good is getting the best mortgage rates when you do not have a job and the ability to repay?
  • The widely contagious virus is having a huge impact on businesses where many have ordered employees laid-off
  • Other businesses are on the brink of bankruptcy and/or closing down
  • A number of states have declared a state of emergency where the governor has ordered all non-essential businesses closed until further notice
  • This impacts real estate agents from showing homes
  • The COVID-19—more commonly referred to as coronavirus or novel coronavirus— has been declared as a global pandemic by the World Health Organization (WHO)
  • The deadly virus has claimed over 9,000 lives worldwide and its toll is climbing daily

Many businesses and large corporations have suspended travel, events, and conferences and instructed workers to work from home. This has a major impact on the economy where the Dow Jones and other equity markets have plummeted over 30 percent since February 24th.

Orders Of Social Distancing And Other Changes In Daily Behavior

The CDC has recommended social distancing effective immediately as a measure to avoid spreading the virus.

  • Other measures include washing your hands with a coronavirus killer sanitizer
  • The home buying and mortgage process can still continue if all involved use the proper methods from spreading the virus
  • However, many homebuyers are worried about the housing market going through a housing crash just like Wall Street
  • There are no vaccines for the deadly coronavirus as of today
  • The Trump Administration has been transparent and aggressive in battling the coronavirus pandemic
  • New cases are being discovered daily and the death toll numbers are increasing
  • Government officials warned of increasing new cases as well as increasing death numbers before it gets better
  • Many countries like Italy, many parts of Asia, and India have completed shut down the whole country and its President ordered a stay-at-home order

The coronavirus pandemic is beginning to affect the mortgage and lending markets which are beginning to have a toll on the housing market.

How The Coronavirus Is Impacting The Housing Market With Inventory Versus Demand

How The Coronavirus Is Impacting The Housing Market With Inventory Versus Demand

Prices go up when there is more demand than inventory.

  • This has been the case with the housing market for the past several years
  • This is the main reason both the Federal Housing Finance Agency (the FHFA) and HUD have been increasing loan limits on Conventional and FHA loans for the past four years
  • Lenders also created and launched countless Non-QM mortgage programs which added fuel to the fire in getting more homebuyers to pull the trigger to purchase
  • Many homebuyers and homeowners were not concerned about another housing bubble or a recession
  • However, things changed overnight after the coronavirus outbreak in February

Zillow conducted a study on the impact of the housing market during the previous virus pandemics and found the following:

The conclusion from Zillow was while home sales dropped dramatically during the pandemic, home prices stayed about the same or suffered a slight decrease. This makes intuitive sense because it’s harder for prices to change when there are few transactions. In short, previous pandemics have simply put the housing market on pause.

Trump Coronavirus Stimulus Actions

President Trump and his administration have been proactive during the coronavirus pandemic.

  • The Trump Administration proposed a two trillion-dollar coronavirus stimulus package to help both companies and individual Americans
  • Individual taxpayers may get anywhere between $1,200 to $4,000 from the government to get by during this crisis
  • The Trump Administration has implemented a moratorium on foreclosures on any mortgage that is guaranteed, insured, backed by FHA, Fannie Mae, Freddie Mac until May
  • The foreclosure moratorium was implemented to keep the bottom from falling out of the housing market
  • Expects predicted an accelerated rate of foreclosures from the economic downfall from the coronavirus pandemic
  • The Fed cut rates to zero in an emergency move due to increased pressure by the President and economic experts to keep the markets from falling further and crashing the US economy
  • The stock markets have an impact on the mortgage and lending markets

Massimo Ressa of GCA Mortgage Group said the following:

When investors start thinking the stock market is too risky—like right now—they sell their stocks and buy bonds. The increased demand pushes the price of bonds higher. The higher the price of bonds, the lower the interest payment—called the yield—is relative to the price. When bond yields are lower, mortgage rates are lower, too. This inverse relationship between stocks and bonds has not held as firm as it has historically, probably in part because interest rates were already so low. Rates are down to around 3.7 percent, and it’s an open question of how low mortgage lenders are willing to go, regardless of whether the Federal Reserve cuts its target rate again. The housing market is, in a word, tight. Consider Seattle, where home prices have risen dramatically as it has become one of the country’s leading tech hubs. And while the nation as a whole is suffering from housing shortages, Seattle’s available homes for sale dropped a dramatic 27.6 percent year-over-year in January. The housing market in other cities isn’t much better off: supply is at near-record lows nationwide, and demand is near an all-time high. This combination means home prices are also near all-time highs in most cities as many potential buyers are bidding on a limited supply of homes for sale. At the end of 2019, the number of houses for sale dropped even lower, particularly on the West Coast. Compared to a year ago, some cities saw double-digit percentage decreases in available homes for sale, although that is partly a function of there having been a supply spike in the second half of 2019, so the decrease looks starker than it otherwise would.

Look at the chart below:

What is the percentage change in homes for sale in January year on year

Prior to the pandemic outbreak, there were much more homebuyers than inventory of homes. In just a period of a few weeks, there are many homebuyers who put everything on hold. There are many cases where homes under contract, buyers backed out. It was for multiple reasons. Some got laid off. Others canceled their purchase contracts due to employment uncertainties. Others are worried about another 2008 financial crisis and a recession. When the 2008 stock market crash, the housing markets followed. Housing is a need first and an investment. People need to live.

Disruption Of Housing Due To The Economic Chaos Today

Homebuilders may be affected by the recent economic meltdown. Close to 40% of homebuilder’s supply lines come from China. With many providences in China shut down, home builders and contractors may experience a delay with the delivery of materials. Many builders are seeing the impact of delays where they cannot meet completion dates which impact closing dates.

Michael Gracz of Gustan Cho Associates said the following:

This could delay home construction at a time when it has finally picked back up. Since the financial crisis, home building has struggled to keep pace with demand because of the cost of construction, lack of available land, and a construction labor shortage. However, home builder confidence has skyrocketed in recent months. This signals that builders are more inclined to start construction on homes. To wit, new home sales—largely dependent on how many homes are built—have spiked dramatically in recent months, as have construction starts But if supply lines are disrupted, it could dampen the pace of home building and contribute to inventory shortages. Low-interest rates help support demand, and consumer confidence readings in the coming months will be key, but the virus does heighten some of the longer-term challenges on the supply side in terms of housing supply.

Why Are Lenders Increasing Rates When Mortgage Rates Are At Historic Lows

Why Are Lenders Increasing Rates When Mortgage Rates Are At Historic Lows

Gustan Cho Associates Mortgage Group has countless calls daily from borrowers asking why are lenders increasing rates when mortgage rates are at an all-time low? Mortgage rates have been increasing steadily for the past three weeks. This is due to lenders being at full capacity. They have more business than they have mortgage employees to work on them. Why would they want to lower rates and flood the market with more business if they cannot handle the business they have now. The second reason is liquidity. They cannot liquidate and/or sell the loans they have on the secondary market. They are strapped until there is more liquidity. Many non-QM lenders have suspended their lending until further notice. Other lenders are suspending mortgage rate locks until the file has been cleared to close.

The housing and mortgage markets will stabilize. We expect that in two to four weeks the housing and mortgage markets will come to grips and mortgage rates will come down. This is a breaking story from Gustan Cho Associates. We will keep our viewers updated with new developments in the days and weeks to come.

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