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Elephant In Room: Housing Prices; HELOCs Too

a young woamn wearing a sweater, jeans, and glasses, sits on her couch and looks at a laptop for updates for buyers in the housing marketChase stopped accepting applications for home equity lines of credit (HELOCs).

I mentioned this previously, but in 2008, HELOC lenders not only stopped taking applications but they also froze existing HELOCs.

Given the trends, HELOC borrowers in need of cash might consider drawing on their HELOCs now before they are frozen (as I mentioned in a previous blog).


I was asked for advice yesterday for a buyer whose appraisal came in $55,000 under contract price (another lender was doing the loan). The seller and the selling agent were pushing the buyer to bring in the shortfall b/c the “market was so hot.” There is a bit more to the story but my advice was to not bring in the shortfall b/c buyers have more leverage in this market, with so many other buyers on the sidelines.

But despite my above advice, I am amazed by the sheer number of buyers still in the market and the number of contracts that continue to roll in.

If you ask the internet about “COVID-19’s effect on real estate prices,” dozens of articles surface, but all are just a bunch of hedged predictions.

This is b/c nobody has a clue what will happen to home prices. There are way too many unknowns, particularly with the FED influencing the economy so much and with so much confusion about when the economy will reopen.

Here are some factors that push prices down: (1) uncertainty and fear that keeps buyers from entering the market; (2) unemployment that keeps buyers out of the market altogether; and (3) stock market and asset declines that have zapped liquidity and down payment funds.

Here are some factors that keep prices up: (1) less inventory, as many sellers are staying out of the market; (2) lower rates, as buyers can now qualify for more; and (3) supply and demand, as household formations will continue to outpace inventory growth.

Fannie Mae: Home sales will decline by 15% in 2020 due to coronavirus, but what will happen to property prices?

The above headline links to a Market Watch column from yesterday. While the number of transactions will likely decrease, nobody knows what the effect on prices will be.

But, the column does suggest that the effect will not be significant and not long-lasting if we do see an effect.

In this CNBC interview, Quicken Loans CEO, Jay Farner, predicts a 10% decline in prices.

And Barry Habib of the MBS Highway is predicting a correction too but he thinks the market will definitely bounce back b/c of the demographic trends I have alluded to many times in previous blogs (lots of millennials hitting homebuying age).

So yes, I too think we will see a temporary correction in the portion of the housing market associated with conforming loans, and a longer term correction in the jumbo market – where rates are much higher and financing is harder to come by.

But, I side with Barry Habib and Quicken’s CEO in believing that the market will bounce back and then some b/c of lower rates, strong demand b/c of new household formations, and continued inventory shortages.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167