Thoughts on how Corona will affect the Real Estate Market? (2015, mortgage)

[cbm369]

I know we in the US are still early into this Corona pandemic and I think we are definitely headed into a recession, but curious to hear some thoughts/opinions on the short term (2-6 months) and longer term (6-18 month) on how you think this effects the Real Estate market?

I know the 08' -09' bubble was driven more by sub-prime lending/defaults, but do you think we are headed for anything near that. The longer people are unable to work, because of quarantines, the greater the chance of them defaulting on mortgages, sub-prime or not.


Thoughts?

[WRnative]

Originally Posted by cbm369

I know we in the US are still early into this Corona pandemic and I think we are definitely headed into a recession, but curious to hear some thoughts/opinions on the short term (2-6 months) and longer term (6-18 month) on how you think this effects the Real Estate market?

I know the 08' -09' bubble was driven more by sub-prime lending/defaults, but do you think we are headed for anything near that. The longer people are unable to work, because of quarantines, the greater the chance of them defaulting on mortgages, sub-prime or not.


Thoughts?

Here are my off-the-top-of-the-head thoughts as an older investor who entered the work force in the 1970s.

There has been a massively negative wealth effect unleashed. This surely will impact housing prices and greatly reduce discretionary income. President Trump says there will be a quick bounce back. I doubt that because persons will be significantly poorer once this crisis begins to unwind. The lockdowns may last longer than expected, certainly by the Trump administration. The death toll may be terrifying. American media is not YET reporting the dire forecasts being made by experts.

Modeling study suggests 18 months of COVID-19 social distancing, much disruption | CIDRAP

As for Florida, with reduced national discretionary income, the tourism industry may be greatly impaired. Development construction may implode along with reduced national wealth. Florida may be forced to raise taxes, even initiate an income tax. If so, Florida's status as a tax haven may be impaired and its attraction to those fleeing higher tax states reduced.

Finally, the Fed is massively expanding its balance sheet. The Federal budget deficit for this year may be $3-5 trillion, although financed by borrowing with tax receipts certain to plummet, and with the Fed monetizing the debt. This is the perfect prescription for much higher interest and mortgage rates and a general stagflation that may rival or even greatly exceed the Great Stagflation of the 1970s and early 1980s.

Certainly researching the Great Stagflation may be a worthwhile endeavor in the months ahead.

https://www.investopedia.com/article...tagflation.asp

https://www.nber.org/papers/w7547

A coming Stagflation may explain why many top investors, such as Bond King Jeffrey Gundlach, now rave about gold.

https://awealthofcommonsense.com/2015/02/1970s/


https://www.youtube.com/watch?v=4kY-lCDflj8

Housing prices did perform well in the 1970s, but this was because of the Baby Boomers forming households in addition to the massive general inflation. The Baby Boomers weren't burdened by college debt, or a likely pandemic-induced economic depression, and even could afford the double-digit mortgage rates of the period. The U.S. government also was much healthier financially, and the U.S. was the world's greatest creditor nation at the time, as opposed to today being the world's greatest creditor nation. Economic comparisons never are simple.

https://www.cnbc.com/2017/06/23/how-...ince-1940.html

As for Florida real estate, additional concerns exist IMO. See the discussion in this thread beginning with post 4:

https://www.city-data.com/forum/sara...rket-news.html

[WRnative]

Originally Posted by WRnative

Housing prices did perform well in the 1970s, but this was because of the Baby Boomers forming households in addition to the massive general inflation. The Baby Boomers weren't burdened by college debt, or a likely pandemic-induced economic depression, and even could afford the double-digit mortgage rates of the period. The U.S. government also was much healthier financially, and the U.S. was the world's greatest creditor nation at the time, as opposed to today being the world's greatest creditor nation. Economic comparisons never are simple.

Today, the U.S. is the world's greatest debtor nation.

Currently, the U.S. dollar has a high valuation, greatly due to weakness in the euro.

Many experts forecast a much weaker dollar in the years ahead, especially versus currencies other than the euro. Such a weakening of the dollar's purchasing power parity also could cause inflation.

IF someone can qualify for a mortgage with interest rates below 5 percent, buying a house now IN THE RIGHT MARKET (which may not be Florida, especially ocean coastal properties in FL or elsewhere in the U.S. or the world) may offer great protection against inflation.

[blb078]

My 2 cents, which are not even worth 2 cents is that this may be big in a bad way. I don't think we will see prices like we saw in 08 and stuff but I think the percentage of decline will be worse. Unless there is some kind of big cure or something found soon the amount of people not working is only going to increase and if people aren't working bills aren't getting paid. Unless they put some kind of hold in mortgage payments/late fees which even that may only be band aid. When you see places like Vegas, Disney, etc looking like ghost towns you know it's bad.

[WRnative]

Many recent articles have discussed tightening mortgage loan criteria.

<<The latest Mortgage Credit Availability Index shows lenders are tightening their standards amid the coronavirus pandemic. Overall mortgage availability is now 16% lower than it was in February and at its lowest point since June 2015.

The availability of conventional loans dropped 24.2% in March, while jumbo loan availability dipped 36.9%. Government loans, which include USDA, VA and FHA mortgages, fell 6.6%. >>

https://www.forbes.com/sites/alyyale.../#72c6dfff4f2a

<<“Credit requirements have gotten tighter across the board. Lenders are raising credit score requirements by 100 points,” says David Lazowski, regional SVP at Fairway Independent Mortgage Corporation in Boston. “We used to do loans down to 520, now we’re up to a minimum 580 credit score, there’s a chance they might go to 700. We hope that doesn’t happen because it will put people at a disadvantage.”>>

https://www.bankrate.com/mortgages/r...us-job-losses/

Mortgage lenders likely are worried that the economic impact of the COVID-19 lockdowns will last well beyond 2020, as negative multiplier impacts from the ongoing economic collapse ripple through the economy, increasing unemployment among those still employed, and reducing significantly the profitability of businesses. Service businesses dependent on discretionary income, such as tourism and travel, may especially suffer as a negative wealth impact causes consumers and businesses to tighten the fiscal belts.

[SeaRay35]

Lenders are raising credit score requirements by 100 points,” says David Lazowski, regional SVP at Fairway Independent Mortgage Corporation in Boston. “We used to do loans down to 520, now we’re up to a minimum 580 credit score,
It’s always interesting, how reports have to be dramatized. Raised by 100 points, but his actual math is 60 points, now that’s one helluva range on a credit score. People are still buying and the market will come back just have to be patient.

[garyk9gs]

Credit score has, to me, lost a lot of credibility. I saw an ad on TV lately that simply by downloading an (Experian?) app to your phone you can raise your credit score by 20 points.

[gailjnh]

Originally Posted by garyk9gs

Credit score has, to me, lost a lot of credibility. I saw an ad on TV lately that simply by downloading an (Experian?) app to your phone you can raise your credit score by 20 points.

I agree with this particularly for Experian. Last month, for no apparent reason, my Experian score dropped over 40 points. Transunion and Equifax went up 4 and 5 point respectively for the same period. All three reports have almost exactly the same info: less than 3% of available credit used, no new inquiries, never a late payment, no one card with more than 6% utilization, and no collections or derogatory info on any report nor any balances carried from month to month.



This month, Experian went up about 10 points but I'm still now now 30 points from where I was. I was alot happier with my score at 780 than I was with it at 740. I'll probably never get close to 850 because they punish me for not having any installment loans. Who knew paying cash for a car was a reason to be penalized.

[ranchonodinero]

The South Florida real estate market is a unique area. It is a haven for people who are at retirement age that want to escape crappy weather and high taxes. I'd think that many of the people in the market are retired or near retired. Many of these people will have a guaranteed pension/retirement. Just watching prices so far, may have ticked down slightly.

[7SierraTango]

I'm 64 years old and a native of Iowa. For many years I have vacationed in Florida and have dreamed of retiring there. I think of myself as a fairly intelligent business owner and try to absorb as much information as I can before making a decision. I remember watching the Florida markets during the 2008 disaster. Looking at prices and watching the financial news from there I remember it being very scary.

According to business and medical experts this event will be worse than '08. There will be no let up in this disease until there is a vaccine. Normally a vaccine takes 12 - 15 years to develop. They are hoping to find a lightening fast cure in 12 - 18 months. They have found that the virus weakens with heat and humidity and in sunshine. But they also expect a second wave this fall. And it is believed to be worse, with more deaths than now. As long as people are allowed to wander freely. Travel country to country and city to city there is no stopping a virus that transmits this fast between species and people.
In this day and age would you ever have thought something this disastrous could occur? For the first time in my life is see no defines end this this event.

I was hoping for a slight recession to get a better price on a home down there now that I am ready to buy. But, I'm afraid that the prices will be incredibly low. Frightening low and on the backs of the current owners loosing jobs and assets. I'm not proud of taking advantage of someone's misfortunes but I know I have a good two years now to be patient. And between rising coastal waters and decreasing prices I need to be smart.