GMR 141: What's Ahead for the Housing Market?

The Housing Market has seen a significant increase over the last few years. With the pandemic still impacting the economy, especially jobs, many Americans are seeking forbearance on their mortgages. How will this impact the housing market in the near future? Listen to this episode of Getting Money Right to find out and to learn what you should do to prepare.

Show Notes

Economy Recap

3 Forces that impact the economy

  1. Productivity Growth

  2. Short term debt cycles

  3. Long-term debt cycles

As Congress debates what to include in the next coronavirus relief package, almost one-third of households, 32%, owed money for missed rent or mortgage payments from previous months at the beginning of August.

August marked the fourth straight month that around one-third of U.S. households did not make their full housing payment on time, per Apartment List.

Forbearance:

  • Pause in monthly payments

  • It doesn’t erase what you owe; the amount owed keeps growing as you miss payments.

  • Have to pay in full in the future

Cares Act:

  • 180 days of forbearance

  • Extend another 180s of forbearance on top

Forbearance Stats

  • 2020 March 8th - less than 1% forbearance on all loans

  • 2020 April 26th - 7.55% of all loans 

  • 2020 June 21st - 8.47% of all loans in forbearance

Each lender is handling forbearance a little bit different.

  • Lump-sum full payment at the end of the forbearance.

  • The loan term is extended, and payments are added to the end of the loan.

  • Or increased payments for a couple of years to make up for missed payments during the forbearance.

The government said property owners couldn’t evict people in the Cares Act, but didn’t specify how it would be paid for.

Housing Stats

  • 128 Million Households in the U.S.

  • 40% of homes are owned free and clear, with no mortgage, around 50,000 homes.

  • 70 Million mortgages.

  • 5 Million mortgages are behind on payments.

2008 Recession - 2020 Pandemic

  1. 2008 Crisis

    • Housing and Community Development Act of 1992 encouraged homeownership.

    • Speculation - Adjustable Rate Mortgages (ARM) became widely used.

    • Collateralized Debt Obligations

      • Highly rated by the rating agencies, people thought buying a house was a good investment, but really they should’ve been rated lower. The thought was that it was safe because it was backed by collateral in homes.

      • People were also pulling equity out of their homes to increase their lifestyle, assuming housing prices would go up.

    • Slow but steady recovery

  2. COVID Pandemic

    • Rapid economic slow-down with increased unemployment.

    • Currently, lots of people are in homes, so there are not many homes on the market. However, with 8%+ of homes in forbearance, we may see many homes being put for sale soon. This would give buyers lots of options and therefore lower the prices of homes overall.

Recessionary cycle

  • We talked about deleveraging. People will be removing debt from their lives, either the easy way or the hard way.

  • Debt is called leverage, people are going to lose access to debt, so they will “deleverage” this lowers incomes for other people because our spending is someone else’s income. This cycle is going to be painful; now is the time to prepare.

  • Unemployment will cause the recession to be a slow recovery.

    • Bureau of Labor Statistics.

    • 4% unemployment in February before the pandemic.

    • 15% unemployment at the height of the pandemic in May.

    • 8% unemployment today, and continuing to trend down

Housing Market Outlook

  • Forbearance for student loans set to end 12/2020.

  • Cares Act forbearance on homes was accessible for 12 months, so if someone started in Mar 2020, they would have payments again in Mar 2021. 

  • It looks like 2021 will have more houses on the market, so the c’ cost will be less, which means less spending in the economy, less equity in homes, and a slow economy.

Recommendations?

  1. Save like crazy!

  2. If you can’t make your payments, sell your house now and rent for 12-18 months till housing prices go down.

  3. Spend wisely and increase margin.

Resources


Debt tools and other free resources - https://leosabo.com/resources
Online Budget Course - https://courses.leosabo.com/
David’s website - www.stewardshippastors.com