In today’s video, we’ll show you the data and the expert predictions. We are going to give you the indicators of the coming housing crisis, track the timeline of government response, and break down what this all means for homeowners and the economy at large.
CEO of Wolf Street Corp. and Fed policy expert Wolf Richter called attention to a disturbing trend in which housing markets even in typically active areas, like San Francisco, are essentially grinding to a halt.
According to data from real estate listing firm Redfin, there was a steep annual decline of 22.7% in home sales last month. Simultaneously, new listings plunged 41% from last year’s numbers in April. Housing inventory declined by 21%.
Weiss Analytics notes that “30% of homes priced at $200,000 or less have been listed at a median discount of 6.3% compared to February. On the other hand, 37% of homes with a value of $600,000 or more have been listed at a median discount of 7.7%.”
Aside from a floundering buyers’ climate, the mortgage market is also being hit hard.
A new report from Oxford Economics estimates that 15% of homeowners will fall behind on their monthly mortgage payments as a result of the pandemic, which would cause delinquencies to surpass the number seen during the Great Recession.
According to Oxford Economics, “The uncertainty in the mortgage market has contributed to a significant tightening of lending standards that may persist even once a recovery is underway.”
Since the residential mortgage market is worth over $11 trillion, this slow bounce back will leave homeowners feeling the effects of the crash for years.
While some argue that low mortgage rates could actually attract buyers, stricter lending criteria will produce the opposite effect in a climate where consumer spending is hitting record lows.
Government response, needed to counteract the effects of the looming housing crash before it’s too late, has been slow.
The crash will devastate not only borrowers, but lenders as well.
Local mortgage banks swept in in the aftermath of the 2008 stock market crash to fill the vacuum left by the decline of mortgage lending by larger banks. Now, they are the ones responsible for over half of all single-family home mortgages in the US.
The loan servicers are liable for advancing the monthly sum of mortgage payments before collecting these from the borrower. As forbearance rates shoot up, this causes an extra squeeze on such companies.
Despite the skyrocketing unemployment rates, the Fed has not offered any direct help in the form of purchasing bonds issued by cash-strapped mortgage providers and servicers, a move they notably made in the 2008 housing crisis but have thus far not elected to repeat. These bonds are backed by loans made to mortgage borrowers who have missed their payments
Purchasing such bonds would help to ease the burden on loan service companies.
As local mortgage banks flounder, the bigger banks infamous for unfairly foreclosing mortgages in the aftermath of the last housing bubble would then step in to take over their assets. In this way, mortgage failures would continue to spiral, harming lenders and borrowers alike.
“So there you have it,” Wolf Richter wrote. “A most splendid housing bubble and an equally splendid vacation-rental boom that were both caught at the peak in their most vulnerable state by The Virus that upended everything.”
Amidst all the uncertainty and inaction, one thing is clear: the housing crisis is not an if, but a when. Unlike the slower burning crisis in 2008, this pandemic is pushing things along at an alarming pace. In the impending economic collapse, thousands of families will be brought to the brink of losing their homes, as the real estate market flounders and too-little, too-late policies fail to stabilize the pandemic-induced recession. Homeowners that still remember the fallout of the 2008 housing bubble will, just over a decade later, feel the effects of government failure all too close to home once again.
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