What is going on? That is just one of the questions we hear a lot these days. People also wonder when we will see foreclosure rates go up. Behind those and many other questions are real concerns of the not-so-distant financial crisis of 2008; sub-prime lending causes the stock market to crash, home values to sink, and record unemployment. Now in 2020 we have another crash of the stock market and rise in unemployment. Surely, the ship is sinking, right? We do not think so and here is why.
When you turn to the facts and data, you see a much different picture. But to be fair, its ugly out there and we are not going to sugar coat that. It is still unknown what the path of the virus will take and without a vaccine its anyone’s guess how long this will impact our lives. Housing data related to the pandemic has been measured and according to the National Association of Realtors, we saw a 21 percent drop in pending sales. Between March and April, 26 million people filed for unemployment, mortgage delinquencies rose to 1.6 million, and the federal budget deficit rose to 4 trillion dollars. Not a rosy picture, but here is what’s different this time.
For a start, the federal government, in true Texas Hold ‘Em style, went all-in immediately. In 2008 the focus was on saving the banks and we know the hardship that created but this time they did not forget about small businesses and homeowners. The recently enacted Coronavirus Aid, Relief and Economic Security (CARES) Act provided immediate wage replacement, SBA loans, economic injury disaster loans, and an additional unemployment insurance enhancement. The CARES Act also provided mortgage forbearance protection and a foreclosure and eviction freeze, as well as quantitative easing for mortgages and corporate debt. And the Federal Reserve lowered the federal interest rate to zero much sooner than they did in 2008. So, the reaction was swift, and the safety net was the largest ever thrown over an economy.
Another important difference to consider is the housing inventory. From 2000 to 2007, housing starts were above the historic average of 1.5 million per year; especially in the years of 2005 and 2006, homebuilding was going wild and way too many homes were being built. The result was a tremendous oversupply of homes on the market. Following the crash, housing starts dropped to below 500,000 units and has stayed below the historic average for well over a decade, resulting in a housing shortage. Now, with the pandemic, we have an even greater shortage of homes on the market. Remember that 70 percent of Americans still have secure employment and as economic easing occurs and more sellers start to sell, that will stimulate the market rather than saturate the market. Further, sellers will become the next buyers as they move into new homes.
Mortgages in the financial crisis of 2008 were basically junk. Sub-prime mortgages flooded the market and many of these loans had variable rates that would set higher over time. The fall in new mortgage applications that began in mid-March, down 30 percent, began rebounding mid-April. The 10 Year Treasury note serves as a benchmark for the 30-year fixed mortgage rate and as that has moved downward so have mortgage rates. Now, a 30-year fixed rate mortgage is around 3.3 percent and could go even lower as re-financing begins to slow down.
How people feel about the market is important. The consumer confidence index is one data point for measurement and rating below 100 indicates a lack of confidence in the economy. April’s index was measured at 86.9, which is a six-year low but not as low as January of 2009 when it fell to 37.7. More specific to real estate, the National Association of Realtors surveys show that homesellers are remaining calm and see no signs of blood in the water. 88 percent of sellers anticipate getting their asking price. Buyers on the other hand expect a discount with only 50 percent of buyers seeing no change in home prices. And 23 percent of buyers expect to get 5 percent to 10 percent off the listed price, which was typical pre-pandemic. Those who did not buy a home a few months ago because of multiple-offers and tight inventory may be more eager to snatch up what comes on the market this summer.
So, we are remaining bullish on the real estate market. Until we have a vaccine, we hope that all our readers stay safe and heed the words of the CDC and the governor, who we believe is doing a great job keeping New Mexicans safe. Please support your local businesses, too, and let us all do our part to avoid spreading the virus. Let’s work together to stay safe, stay well, and be strong as we are all in this together!
Roger and Melissa are longtime Realtors serving both buyers and sellers. Melissa is a past president of the Santa Fe Association of Realtors and Roger is currently serving as the first vice president. They can be reached at 505-699-3112 or email@example.com or visit them online at santafepropertyfinder.com