Despite some areas thriving amidst the pandemic, real estate experts say the U.S. housing market is about to see some trouble. Eviction and foreclosure moratoriums have been extended through the end of 2020, but after that, millions of people will have to start making payments once again.
Most people in forbearance will have gone nine months without making any payments. Missed mortgage payments won’t be forgiven and borrowers will be responsible for paying back all missed payments. At this time, it’s not clear whether all nine months will become due at once or if some lenders will offer payment arrangements.
Mortgage delinquency began rising pre-pandemic
Delinquent mortgages have been high since before the pandemic started. For instance, As of 2018, a quarter of all delinquent borrowers in the U.S. had not made a mortgage payment in five or more years. By the end of June 2020, 21.3% of non-qualified mortgages (non-QM) were delinquent and 23.7% of sub-prime mortgages were delinquent by July 2020.
These numbers look concerning, but current delinquency rates aren’t as high as they were during the 2008 crash. Also, many housing markets are thriving and homes are in short supply. Is there a good reason to be concerned?
The answer is yes. There are several good reasons to be concerned. Although home sales are booming and there are fewer homes than home buyers, the average asking price for homes has fallen dramatically. For example, San Francisco’s asking prices dropped by 24.5%; Denver’s dropped by 41%; and Seattle’s dropped by 31%. So, despite home sales rising, prices are going down, which indicates the housing market is weakening.
A great opportunity for real estate investors
Real estate investors can take advantage of two things right now: low interest rates and low prices. If you’re an investor looking to expand your portfolio, now is the perfect time to take out a mortgage since interest rates have dropped significantly.
Buying real estate in the current market is going to be a long-term strategy that will take a little longer than usual to see a return. However, prices are too good to pass up. If you’re able to make your mortgage payments, you can acquire some great properties that will become sources of passive income much faster than usual.
Real estate investors are focusing on acquisitions
With house prices falling, real estate investors are picking up some great deals in cities like Seattle, San Francisco, and Houston. In fact, many investors have enough properties that require property management services to maintain. Most investors can handle managing one or two single-family homes, but a property management company makes being a landlord easy. They handle everything from marketing and tenant selection to repairs and evictions.
Investors are buying property mostly in areas where the job market hasn’t crashed too hard. One of those cities happens to be Houston, Texas. Houston recently created thousands of manufacturing jobs and of all the cities in the U.S., Houston has seen some of the most home buying activity.
The housing market is experiencing a new kind of crisis
Many don’t believe the housing market is in trouble and that may be the result of a new kind of crisis. The 2008 crash was caused by too many delinquent sub-prime mortgages. However, our current issues are the result of economic shutdowns. The shutdown has been going on for almost a year and nobody knows when it will end.
The main problem is when the economy shuts down, people lose their jobs and can’t pay their mortgages. Towns with little to no job opportunities are unlikely to attract home buyers unless the buyer works remotely online and doesn’t need to rely on having job opportunities nearby. If local economies shut down for too long, more and more businesses have to close for good, which dramatically reduces the number of available jobs.
The market won’t likely stabilize until the pandemic is over
With economic shutdowns driving a majority of job markets into trouble, we won’t see a stable housing market until the pandemic is over and the job market becomes stable. While the COVID-19 pandemic hasn’t shut down every economy, there’s no telling when another round of lockdowns will occur. In fact, experts are warning of another potential lockdown in the winter.
The University of Washington’s Institute for Health Metrics and Evaluation predicts 410,000 deaths in the U.S. by the end of 2020 and more than 2,500,000 by March 20201.
Will the housing market return to normal? Maybe
As we know, there is a ‘new normal’ for the way we do everything, which might include the housing market. When the market does return to normal, home prices might remain low until the job market strengthens, but it’s hard to know for sure.