The Coronavirus Is Impacting The Housing And Mortgage Market

BREAKING NEWS: How The Coronavirus Is Impacting The Housing And Mortgage Market

The Coronavirus Is Impacting The Housing And Mortgage Market
Gustan Cho Associates

There is no doubt The Coronavirus Is Impacting The Housing And Mortgage Market.

  • The housing market was rock-solid prior to the coronavirus pandemic hitting the United States
  • Not only did we have a strong housing market, but the United States economy has been the strongest in history
  • The Dow Jones Industrial Average hit an all-time historic high of 29,000 in February 2020
  • Unemployment rates have hit an all-time historic low at under 3.5%
  • Home values were increasing year after year with no sign of any correction or recession
  • Due to rising home prices, both HUD and the FHFA had to increase FHA and Conventional loan limits for the past four years in a row
  • The housing market was out of control
  • There was more demand for homes than inventory
  • A bidding war was common
  • Mortgage companies brought back alternative financing mortgage programs such as bank statement loans for self-employed borrowers and non-QM loans
  • Life was good in the U.S. Many hard-working Americans saw their 401k’s skyrocket over 50% since President Donald Trump took office three years ago
  • Then the coronavirus hit the United States like a firestorm
  • In a matter of a few weeks, the pandemic shut down the U.S. economy, left over 22 million Americans unemployed, tanked the stock market by over 30%, and shut down the country
  • The pandemic has turned real estate and mortgage markets upside down
  • The Coronavirus Is Impacting The Housing And Mortgage Market, but the amount of damage is not known

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

How The Coronavirus Is Impacting The Housing Market And Homebuyers In 2020

The coronavirus started in December 2019 in Wuhan China.

  • The virus soon made it to the U.S. and spread like wildfire
  • The U.S. economy came to an abrupt halt
  • All non-essential businesses were forced to closed
  • Most state governors issued a state of emergency in shutting their state’s down
  • What this mean is all non-essential businesses remain closed
  • All schools, parks, libraries, churches, and other places where gathers 10 or more people be remain closed
  • Police, Fire, Hospitals, Groceries, Pharmacies, and other essential businesses and agencies are allowed to remain open
  • The real estate and mortgage business is considered essential businesses so they are allowed to remain open
  • So banks, mortgage bankers, mortgage brokers, appraisers, title companies, realtors, attorneys, and other third-party real estate-related vendors are allowed to remain open
  • Social distancing guidelines were implemented on both the federal and state levels
  • The housing market has taken a major toll
  • The once strong housing market has been crushed overnight due to the coronavirus
  • Many homebuyers with solid pre-approvals abruptly halted shopping for homes

Most homebuyers are more concerned about having a job in the days and weeks to come versus home values plummeting. Homeowners are worried about another housing collapse and meltdown like the 2008 financial crisis.

The Coronavirus Is Impacting The Housing And Mortgage Market: Can We Have Another Mortgage Crisis?

Can We Have Another Mortgage Crisis?

After the 2008 financial crisis, there were new mortgage regulations that were created and implemented.

  • No doc mortgage loans have been wiped out and eliminated forever
  • Bank statement loans for self-employed borrowers were completely out of the picture
  • New rules and regulations were created on government and conventional loans
  • The government eventually eased the lending guidelines on government and conventional loans so more renters can qualify for a mortgage and become first-time homebuyers
  • Many mortgage companies have created and launched non-QM loans to help borrowers who could not qualify for government and conventional loans
  • Bank statement loans for self-employed borrowers with no income tax return required were back and became very popular
  • The coronavirus pandemic crisis halted all non-QM loans
  • As it stands today, all non-QM loans are on hold by all lenders until further notice
  • Many non-QM lenders went out of business already

The main reason why the mortgage markets are in major chaos is due to liquidity issues on the secondary mortgage bond markets. Investors have no interest in buying lower credit profile mortgage-backed securities (MBS). What this means is until further notice, there is no value for mortgages with borrowers with under 680 credit scores.

Home Sales Have Plummeted Due To Coronavirus Pandemic Impact On The Economy

Prior to the pandemic, the 2020 housing market was rock-solid and strong. However, after the coronavirus pandemic hit the Nation, many homebuyers have halted their home buying process due to economic concerns. The main reason homebuyers have put their home purchase on hold is due to concerns about their job stability.

Massimo Ressa of GCA Mortgage Group said the following:

FeThTThe spread of COVID-19—the disease caused by the novel coronavirus—was officially declared a pandemic by the World Health Organization on March 11. It’s already claimed more than 83,000 lives worldwide. Shelter-in-place orders have been issued for cities across the country and almost 10 million Americans have filed for unemployment since the outbreak of the pandemic.

Zillow conducted a study on housing during previous pandemics and concluded that while home sales dropped dramatically during an outbreak, 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. The most recent housing market data has already shown signs of this playing out in the United States. Web traffic to real estate portals like Zillow, Gustan Cho Associates, Realtor.com and Redfin have dropped by almost 40 percent. New listings of homes for sale have dropped by as much as 70 percent in some markets like New York and East Bay, California. Weekly mortgage applications at GCA Mortgage Group and other mortgage companies dropped 24.9 percent.

Many are concerned with another housing market crash. Some experts are expecting a housing market collapse worse than the 2008 financial crisis. This holds especially true in areas where home prices have appreciated substantially like Florida, Texas, Arizona, Nevada, Georgia, and other high-demand housing states. Many states like Illinois and New York are financially strapped and may face bankruptcy. Illinois and New York had financial problems prior to the pandemic when the U.S. economy was strong.

Aid By The Federal Government

One important factor that shows the promising outcome from the 2020 economic crisis versus the 2008 real estate and economic meltdown is the proactive actions of the Trump Administration. Obama did not help individual taxpayers and businesses as President Trump did. President Trump signed the $2.2 trillion coronavirus pandemic economic stimulus bill into law. Included in the bill, is setting up a moratorium on foreclosures, paying each American taxpayer $1,200, and helping businesses with stimulus money to keep workers employed. President Trump and his administration did damage control by creating a moratorium on foreclosures and offering forbearance to homeowners who could not pay their mortgages due to the pandemic. Homeowners can qualify for a forbearance up to 12 months. This forbearance on mortgages is for any mortgage backed by Freddie Mac, Fannie Mae, or the Federal Housing Administration (FHA). This law will prevent a flood of foreclosures and keep the bottom from falling out of the housing market, as happened in 2008. Unfortunately, this law hurts mortgage servicers because servicers still have to pay interest and principal to investors. Mortgage servicers also need to pay property taxes and insurance for borrowers with escrow accounts. Mortgage servicers may go out of business and/or file for bankruptcy if a flood of homeowners is taking up the offer of forbearances. It yet remains to be seen what the impact this law will have on the mortgage industry.

Changes In The Mortgage Industry Due To The Coronavirus Pandemic

The coronavirus pandemic has affected the mortgage markets. The $2 trillion stimulus package have hurt mortgage lenders. Included in the $2.2 trillion stimulus economic package is giving homeowners who got affected by the coronavirus pandemic become eligible for a mortgage forbearance up to 12 months. What this means is homeowners are exempt from making their mortgage payments up to one year. However, mortgage servicers are still on the hook to pay their investors the principal and interest payments. Servicers also need to pay property tax and insurance payments. Analysts expect over 25% of homeowners to take up on the forbearance offer. This can literally bankrupt many mortgage servicers. There is nothing in the stimulus package on how mortgage servicers will get funds to carry the period of the forbearance from borrowers.

See the chart below on the percent change in home sales for sale in January year-over-year:

What is the percentage change of homes for sale in January on an annual basis

The number of home listings literally dropped overnight after the pandemic hit the United States.

The Coronavirus Is Impacting The Housing And Mortgage Market: 2020 Housing Outlook Before And After The Pandemic

The 2020 housing market was stronger than ever prior to the pandemic. The 2020 housing market outlook was strong with analysts expecting a stronger market than 2019. Piotr Bieda of Gustan Cho Associates and a licensed Illinois realtor has been following the coronavirus pandemic impact of the housing market since the pandemic hit the U.S.

Piotr Bieda said the following:

But the supply spike was short-lived. It’s actually back down near record lows in terms of the level of inventory for many markets and the country as a whole. On the demand side, key indicators suggested before the pandemic that there would be a lot of buyers in the market. Low unemployment, solid wage growth, and low mortgage rates are all signals of high demand. But since then, unemployment has skyrocketed, companies are inducing pay cuts to employed staff, and other signals of demand like mortgage applications and web traffic to real estate portals have dropped precipitously. While the 2008 financial crisis saw both the housing and stock markets drop in tandem, the housing market isn’t typically tied to swings in the stock market because people don’t buy houses purely as an investment. Housing is a basic need, and the decision to buy one is usually prompted by entering a new stage of life. A newly married couple is moving in together and is buying a house. A couple is having a kid and needs more space to accommodate the baby so they buy larger home. Empty nesters have more house than they need after their kids go to college, so they downgrade to a smaller house.

Again, most homeowners and homebuyers are mainly concerned about keeping their jobs so they can afford their homes. Home sales for 2020 are expected to drop significantly in the weeks and months to come. It is too early to predict the negative impact the coronavirus will have on the 2020 housing market.

Most Homebuyers Are On Hold To See How The Pandemic Has Affected The Economy

Why most home buyers are waiting to see how pandemics have affected the economy

As mentioned earlier, most homebuyers who have suspended the homebuying process are due to concerns due to the economy and their jobs. Even though everyone needs shelter, Americans are concerned in buying a home and face foreclosure due to job loss. Over 24% of pre-approved homebuyers have suspended their home buying process due to concerns of future job stability. Many homebuyers are not too concerned about recessions. People still need shelter during severe recessions. Housing values do not plummet during recessions. It may drop or remain stagnant during periods of recessions, but in general, home values do not tank.

Massimo Ressa of Gustan Cho Associates said the following:

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. So how should I approach things heading into the spring homebuying season? The conditions were set for the spring being an incredibly competitive housing market. Inventory is low, demand was high, and mortgage rates are low. If you already own a home, you might consider refinancing while rates are this low. Other homeowners are jumping at the chance. Any prolonged mortgage payment suspension could cause chaos in the mortgage industry and lead to a liquidity crunch, where lenders don’t have the capital to lend to potential homebuyers. Subprime and speciality mortgages, referred to as non-QM, have already vanished for the market, which would make it harder for people with less than perfect credit to qualify.

This is a developing story from Gustan Cho Associates. GCA Mortgage Group will keep our viewers informed as the story develops.

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