TOO OPTIMISTIC ABOUT HOUSING? “Stick to mortgages, Jay!”
I touted the strength of the housing market numerous times over the last several months, and both borrowers and agents told me they thought I was too optimistic in light of all the pandemic news.
One borrower told me to “stick to mortgages and leave the economic predictions to others…” 😊
So, am I gloating?
I was lucky b/c our government somewhat successfully threw $3 trillion of stimulus into the mix and it is shoring everything up for the most part … for now.
This stimulus came in the form of over $500 billion of Paycheck Protection Plan loans to companies; well over $1 trillion in bond purchases; and billions more in special pandemic unemployment funds and other programs.
And this is precisely why we are not out of the woods yet, and we won’t be until all the dust settles (months from now).
Barry Habib of MBS Highway was on The National Real Estate Post last Saturday, discussing these exact issues; I recommend watching the video.
Habib points out numerous risks and/or concerns.
Everyone expects rates to stay very low now … pretty much forever… but there are things that could push rates up unexpectedly. Below are two:
- News of a viable COVID-19 vaccine or that the crisis is largely over. When news of this nature surfaces, it will be so positive that rates will likely increase as a result.
- Unemployment/support benefits end and defaults surge. Millions of borrowers are being propped up with government support and if that support ends, many of those borrowers could end up in default – increasing the risk of mortgage lending. If that happens, mortgage lenders will increase mortgage rates even if Treasury rates fall again.
In my blogs about the strength of the housing market, such as “The Next Housing Boom Is Closer Than You Think,” I focus on the undersupply of housing and the increase in demand for housing brought on by millennials hitting home-buying age.
And currently, the market seems to be on fire, as homebuyers return to the market in droves. According to Habib, 55% of all purchases involve multiple bids right now.
But, Habib also points out that there are 32 million people currently receiving special pandemic-related unemployment benefits (out of a total workforce of 160 million).
That enormous bulge of workers either needs to continue to receive benefits or they need to find gainful employment – if we expect the housing market to remain robust.
I stand by my overall optimism in regard to the housing market over the long run.
But, I also continue to expect a lot of volatility over the next six months to a year – simply b/c there is so much that we do not know and b/c the government is so involved in both the mortgage and housing markets.
And when governments are involved in anything of this magnitude, there are always massive unintended and unforeseen consequences. The 2008 housing meltdown is just one example.
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