Looming Foreclosure Crisis?

Our reader ‘just some guy’ sent in this article and quipped about these writers who insist on promoting a foreclosure scare due to the pandemic. But it is worth noting because it could become a self-fulfilling prophecy just due to the lack of a counter-argument being published at large.

This article is quick to point out that there isn’t a problem yet:

Even after the foreclosure moratorium expires, homeowners on a government-backed loan will have a forbearance option to fall back on, so there’s no need to panic just yet. But digging into mortgage-delinquency data shows how much water is building behind the dam that is these government backstops.

In January, just 3.22 percent of mortgages were in delinquency. By May, that number shot up to 7.76 percent — about three points shy of where the delinquency rate peaked during the financial crisis of 2008, which was at 10.57 percent.

Prior to the the pandemic in March, the number of mortgages in forbearance was fewer than 100,000. Currently, there are roughly 4.5 million mortgages in forbearance, although this is obviously a reflection of homeowners having the option of forbearance, but it gives you a sense of the scope.

Not every homeowner in forbearance is past due on their payments; some went into forbearance as a precaution, or just because they could. Some homeowners were in forbearance and have since gotten out, either because there didn’t end up being a need or they got a new job. For June, 21 percent of mortgages in forbearance were current on their payments, but as the pandemic goes on, more will enter into serious delinquency that would normally trigger a foreclosure.

With the forbearance option available for up to a year, economists have baked into their models a wave of foreclosures in the spring of 2021, which they say would cause a very rare drop in U.S. home prices.

I haven’t heard anyone predict falling home prices in 2021, and Zillow is forecasting a 5.7% increase.

We also know that the loan-modifications that worked last time will get employed again before banks lose a penny.  The only people they might foreclose on are homeowners with sufficient equity, but if it comes to that, then those folks will sell their house instead and make out nicely.

It does add an interesting component to next year’s selling season though, which should be a humdinger!

BTW, I don’t have any insider info on the rumored Compass/Keller Williams merger.  Even if it’s been discussed, it’s hard to believe the egos involved would allow for it.

Current Market Conditions

We are 24 hours into having our new listing on the market and it’s already been shown six times and we have three offers – and all are over the list price!

I heard a rate quote today of 2.55% with less than a point cost, which feels like free money.  As long as buyers can get a 2-something rate, the market should be extremely active!

Building A Loft/Bedroom

Adding a loft/bedroom over a tall ceiling isn’t a big deal – it’s nothing money won’t fix!

This was the day I got into Bloomberg Businessweek:

https://www.bloomberg.com/news/articles/2013-04-04/the-hunter-s-dot-thompson-of-real-estate-chronicles-the-bust-and-boom

Here’s the photo shoot:

https://www.damoncasarez.com/jim-the-realtor

A summary of my life in the 2008-2013 bust-boom:

The Best Month To Buy A Home

This article describes the price swings per season for each town – San Diego is among the least-affected because our weather doesn’t change much.

https://www.nerdwallet.com/blog/best-month-buy-home/

The off-season may have somewhat-lower pricing, but that’s also when inventory is the leanest!

Buy when you find the right house/location, and make the best deal you can.

Wait And See About Foreclosures?

This presentation covers both sides of the concerns about home values plunging because of the effects of the pandemic on the economy.

Suze says don’t buy a house until later this year because there could be foreclosures, and David points out that the CARES Act already gives those in forbearance at least 6-12 months. I’ll point out that the rules changed after the last crisis, and now lenders don’t have to foreclose if they don’t feel like it – which makes foreclosure an option, not a requirement. It’s a huge change that Suze doesn’t see.

Our society is now geared to take advantage of other people’s misfortune, so insiders will pounce.

Home Prices to Decline?

One of the more-accurate forecasters is predicting that home prices will start dropping:

Strong home purchase demand in the first quarter of 2020, coupled with tightening supply, has helped prop up home prices through the coronavirus (COVID-19) crisis. However, the anticipated impacts of the recession are beginning to appear across the housing market. Despite new contract signings rising year over year in May, home price growth is expected to stall in June and remain that way throughout the summer. CoreLogic HPI Forecast predicts a month-over-month price decrease of 0.1% in June and a year-over-year decline of 6.6% by May 2021.

Unlike the Great Recession, the current economic downturn is not driven by the housing market, which continues to post gains in many parts of the country. While activity up until now suggests the housing market will eventually bounce back, the forecasted decline in home prices will largely be due to elevated unemployment rates. This prediction is exacerbated by the recent spike in COVID-19 cases across the country.

https://www.corelogic.com/insights-download/home-price-index.aspx

Expecting prices to fall that quickly is flawed, however.

They are ignoring that for home prices to go down, we would need a load – probably a majority – of sellers who are willing to sell for less than the last guy got.  In addition, it would take realtors who recognize what’s needed, and be able to properly advise their sellers on lower pricing.

It ain’t going to happen.

Listing agents only have one pitch – to berate the buyer agents into paying the seller’s price.  If we ever get to the point where buyers object to the constantly-rising prices, and/or we run out of buyers altogether, then there will be a long stall before sellers and agents re-calibrate.

Recognizing that a shift in pricing is needed will be hampered by all the usual excuses.

The seller retorts of “I’m In No Rush”, “I Don’t Need to Sell”, and the classic, “I’m Not Going to Give It Away”, will be doused with coronavirus blame before any sellers – even the desperate ones – would consider selling for less than what they think they deserve.

Sales will slow first, so keep an eye on them – but it would take 1-2 years of stallout before sellers and agents start believing that they might not get their price.

Top 30 Markets Affected

We are #24 on the Top 30 markets to be affected by the coronavirus, which is pretty far down the list – and we’re still relatively affordable when compared to other higher-end areas.

For those who are thinking of moving to a more affordable area and aren’t affected by the statistics, here are my favorites that still have a 2020 median SP under $300,000, in order of how they rank on the list:

Las Vegas – $283,000 (1st)

Miami – $275,900 (5th)

Orlando – $245,000 (6th)

Ft Myers – $235,000 (8th)

Fresno – $265,000 (12th)

Lakeland FL – $193,000 (13th)

Memphis – $145,000 (21st)

Jacksonville – $210,000 (25th)

Daytona Beach – $202,000 (26th)

Phoenix – $288,000 (28th)

And their surrounding suburbs might be an even greater value!

https://www.usatoday.com/story/money/2020/05/20/cities-on-the-verge-of-a-covid-driven-housing-crisis/111782790/

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