Coronavirus and the Housing Market

Will COVID-19 cause the housing market to collapse, as it did during the financial crisis in 2008?  Myriad factors: the US stock market in flux; a weakened global economy; and rising unemployment nearing levels of the Great Depression, has made some investors anticipate plunging real estate prices. Additionally, with millions of people furloughed or laid off and social distancing hampering business-as-usual, it may take months, if not years, to return to economic normalcy.  But the housing collapse in the early aughts, brought on by subprime lending, is completely different from the situation today. Historically, depending on which area of the country you are in, home prices tend to rise over time. A report by Zillow indicates home price may fall 2-3% and home sales to fall as much as 60% with a recovery anywhere from the the end of 2020 to the end of 2021. So, don’t expect to find the same situation as the Great Recession.

That said, what may be coming is a rise in housing foreclosures.

If the economy continues to lag, homeowners may find it challenging to keep up with mortgage payments. Prompted by Freddie Mac and Fannie Mae , many lenders are offering some sort of flexibility for mortgage holders affected by the fallout from COVID-19 such as reduced or suspended payments under the CARES Act. While this may prevent a surge in foreclosures, Forbes Magazine states

…the CARES Act isn’t specific when it comes to what happens once the forbearance period ends. As a result, individual lenders and servicers are setting different rules about how borrowers must make up the delayed payments.

For some borrowers signing up for a mortgage forbearance program could result in a “balloon” payment, where the delayed payment is due as a lump sum. Already worried about their ability to pay bills and current mortgage payments, this may prompt many people to consider bankruptcy.

Additionally, investors in the rental or short term (AirBnB) markets will be feeling the pinch as people decline to travel or renters lose their jobs. Some investors may carry several mortgages and are looking to off load debt.

An experienced flipper can expect to take advantage of these homes, but shouldn’t expect to find the same situation as the Great Recession.