Founder and CEO of Network Capital Funding Corporation writing about trends in the mortgage industry.
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Unless you have just emerged from under the rock you were living below for the past several months, you are likely aware of an undeniable reality: The steps taken to protect the public’s health from Covid-19 have had a staggeringly chilling effect on the American economy.
The potential economic effects of coronavirus-related measures include:
• As many as 42% of jobs lost to coronavirus being eliminated for good. (The Guardian reports that as many as 40 million U.S. jobs were claimed by coronavirus at one point in late May.)
• The current American recession that could precede an eventual depression.
• Unprecedented impacts on the lending landscape.
While some banks have granted forbearance agreements for mortgage payments affected by Covid-19, borrowers will not have an unlimited leash — their payments will still need to be paid, just at a later date. And yet, the economic impact of coronavirus may only be beginning to rear its head once payments come due.
Homebuyers can expect economic symptoms of Covid-19 to continue in the coming six months, and perhaps longer. Hard realities such as foreclosures may be inevitable, but you may also be able to adapt shrewdly to changing conditions. Here is how I project the lending landscape to evolve during the coming months.
Possible Changes To Lending Industry Regulations
The working class of American people have taken the brunt of the economic hit imposed by coronavirus business suspensions. The federal government has shown that they recognize the precarious position bill-paying consumers and borrowers have been placed in, providing direct financial relief and, in some cases, issuing top-down mandates aimed at easing the burden on those strapped for cash.
I hope that this relief mindset will continue to find its way into the lending industry in the coming months. Those with mortgage payments could see:
• An opportunity to refinance their mortgage without penalty if they were forced to initiate a forbearance agreement because of Covid-19.
• A shortened period for approval of refinancing applications.
• A general opportunity to lock in more favorable mortgage terms considering that interest rates are now at historical lows.
Trying economic times, especially those imposed largely because of federal mandates made in the name of health, warrant borrower-friendly protections. It is my hope that we will continue to see more regulations emerge with borrowers as beneficiaries.
A Steady Re-Emergence Of Housing Inventory
The verdict is in regarding how coronavirus initially impacted housing inventory, and the news has generally not been positive for those seeking to buy a home. Total housing inventory was down 24% by mid-May as a result of the pandemic, according to Redfin, but there may be reason to expect that evolving seller psychology could increase the number of available properties in the next six months.
Those who have been hesitant to sell their home since the emergence of coronavirus may convert to sellers in the coming months because they have had more time to make sense of the economic landscape, whereas the initial shock of the coronavirus may have had something of a paralyzing effect. They may determine that they can no longer afford to live in their home and see a sale as their best option for relief, or bet that housing values will decline in their respective market for months or years, as CNBC reports may be a possibility.
Regardless of each seller’s rationale for listing their home, Redfin notes that the demand for homes is already high according to certain metrics, and housing supply could follow. With interest rates remaining at or around 0%, homebuyer demand may remain steady or even increase.
A Shift In Homebuyer Demand Toward More Affordable Locales
There is nothing like a recession (except, perhaps, a depression) to reinforce the financial fragility of life. As the coronavirus came out of the blue to wipe out tens of millions of American jobs indefinitely, locales with a low cost of living appear to be in vogue.
An analysis of relevant housing data published by The Washington Post concludes that:
• Homes in many “affordable” markets are being purchased at a rapid clip.
• First-time homebuyers may seek more affordable markets, increasing total demand in less expensive locales as a result.
• While more expensive markets may also be tough places to find a home, this could be due to factors such as limited supply rather than a true reflection of heightened demand in such areas.
It is only logical that those who have been personally impacted by the economic tremors of Covid-19, or are willing to learn from the hardships of others, may find markets that allow them to save more by spending less on housing attractive. With this in mind, you could find more competition for housing in affordable markets than you expect.
Possible Effects Of Current And Near-Future Market Conditions
As of now, housing in America is generally defined by an inventory shortage, rising home prices due in large part to limited supply (though this may change sooner than later) and rock-bottom-low interest rates.
Some of the effects of these market conditions are good, with access to low-interest loans allowing more people to purchase homes being one example. But there may be unintended negative consequences of these conditions too. For example, a locked-in mortgage rate that is favorable could reduce the number of motivated sellers once interest rates rise again, as would-be sellers may not be able to find more favorable terms elsewhere. If this happens, home supply may dry up and cause widespread price surges due to few available homes.
Even these possible downsides could be plausibly countered by increased homebuilding, which may also be a positive for overall economic activity.
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