Monday, April 20, 2020 / by Dennis Balduf
There is a lot of questions and concerns around the housing market and a lot of us are experiencing resurfaced pain from scars caused from the 2008 housing crisis. The big question on everyone’s mind is if this is going to be like 2008?
As we are all looking at capacity, staffing, compensation, UW guidelines and overall P&L management; looking at the numbers and not just the headlines is the key in this market. Based on all the data it looks like we need to be prepared for a surge not decline in the months ahead.
I thought the below data was very helpful in analyzing what is coming in the months ahead. Based on the data, almost all economist and experts are calling for a 3rd to 4th quarter rebound. Many feel that the housing market is going to help push the economy forward and that we will need to handle the volume and demand pre-health crisis plus the pent up demand from people that held off buying in 2nd quarter. While it won’t be a light switch recovery everything is pointing to a 2020 rebound.
It’s all in the numbers:
- Historically Pandemics are usually followed by a V shaped recovery and provide little to no damage to home prices. Based on the rebound projections for third and fourth quarter this tells me it’s going to be slower for purchases through June but will push past 1st quarter activity in July and August.
- Unemployment Rates- The unemployment rates are deep but will recover quicker than other recessions. With the type of industries that are out of work and the speed of recovery I don’t anticipate unemployment affecting home prices or overall demand in 2020. 2021 and forward are projected to be at or below 2019 numbers. This should continue to fuel housing growth.
Most states are already starting to see jobless claims decline. This reinforces that the rebound will be faster than anticipated.
- Low Inventory is already an issue. This tells me that we don’t have a glut of inventory sitting around that will drive down home prices like it did in 2008. This coupled with the fact that many home builders have stalled building specs will put increased pressure on supply and inventory. When the demand returns it will likely be difficult to support the demand.
- American’s have a lot of equity in their homes. Which is very different from the 2008 recession. This means that people have equity to weather the storm and will have cash to put towards future down payments should they choose to upgrade from the home they have been stuck in for the last 90 days . This also means if people get into trouble they will be less willing to allow their home to go into foreclosure as they did in 2008 when they were trying to unload an assets they felt had no value.
- Recession doesn’t mean a decline in prices. The 2008 recession was different because it was caused by the housing crisis. There was too much inventory available. Credit was very easy to obtain and homeowners had very little equity in their homes. Americans sold their homes short or allowed them to go into foreclosure because they felt there was no value to the asset only debt. All of these factors caused home prices to decline. The Covid-19 health crisis is causing a depression more similar to 9-11. Fear in the market caused people to avoid travel and not gather in large crowds for fear of another terrorist attack. The stock market decline during that time but home prices experienced a moderate but steady increase.
Overall everything is pointing to an economic recovery in 2020 that will rebound past 1st Quarter. Home prices should continue to moderately increase and home sales should continue to track ahead of 1st quarter pace. Lending should stay stable but it may take extended time for Jumbo, non-QM and lower credit lending to return. All in all its just a waiting game. And fortunately for everyone low interest rates are keeping the wheels on the bus. We just need to plan to keep things moving through the summer and hold on tight for the surge.
Hope this is as encouraging to you as it was to me!