The F Words and Housing

James Duffy

This period of lockdown has resulted in a slowdown in buyers and sellers…but nothing like we would expect with so many out of work and stuck at home still.

And it has been busy, leaving the temptation of keeping my head down and just working on the business that is coming in and closing.

But, like you, I also am raising my head up from time to time trying to test the winds and determine if housing will continue as strong as ever as we come out of this, or if it will take a hit.

And here is a sampling of what I am finding that could affect housing.

Forbearance – As of last week- the last real-time data I saw – 6.4% of Fannie and Freddie loans are in forbearance. That does not include FHA and VA loans. 

The current guidelines for conventional loans are that once a loan is out of forbearance and brought current, that that borrower has to wait 1 year before he can refinance or buy again.

So my friend, Barry Habib, was on a call with the director of FHFA (Fannie & Freddie), Mark Calabria last week. He asked Mark if that current 1 year wait time would hold, and Mark said they are strongly considering changing that rule so that homeowners can sell and buy again right away, as soon as they are brought current – whatever form that may take. What has been clarified is that homeowners in forbearance will not need to make a lump sum payment of several months’ payments to bring the mortgage current.

No change yet, so at this moment the 1 year wait is in place. But, if I were a betting man, I would put my money on the fact that that wait period will be removed. 

And I suspect the same will go with FHA loans and VA loans.

Oh, and if you have clients thinking of using the forbearance option, my friend Scott Schang put together a really useful site to share with them, It documents the current forbearance rules for nearly all mortgage servicers.

Furlough – The jobs report came out this morning (I am writing this on Friday) and we had a smallish number, only 30.5 million initial jobless – so far! *Okay, perhaps said with a bit of sarcasm.* I feel for all of those out of work and wondering what the future may hold.

A job loss has, thankfully, only affected one purchase deal we had going in the pipeline, at least so far. But I have a lot of buyers who were pre approved and now are on the sidelines, waiting to get back to work. And based on a number of conversations, most people in danger of losing their jobs are not out looking at homes.

And to clarify, when someone is laid off, we cannot close them until they are back to work for a full 30 days. 

But this is the largest question mark for me. How quickly will all the unemployed return to work as we open back up?

I want to think it will snap right back and everyone will return to waitress and cook and bellhop and teach dance and doctor and nurse the Urgent care centers. More importantly for us in the Low Country, will there be the same demand for airplanes and safe cars and tall vans?

But I don’t think any of us really believe it will be a bounce-back V recovery. I think it will be more of a U recovery…or a W recovery. Or, as one economist put it, it will probably look more like the Nike swoosh logo.

So, I hope that everyone will have a job right away and that they will have reserves to come up with a down payment. But I do think the buyer pool will shrink.

That said, the demand for housing outstripped the housing available prior to this. I went through the real numbers in this article.

The only worry I have is how disconnected Wall Street is from Main Street. Why are stocks up when we just lost over 30 million jobs? The real worry – even before this virus lockdown, we were seeing a whole lot of companies that were swimming in corporate debt, and propping up their stock prices with that debt by buying back their stock. But, no real profit. 

We are beginning to see a wave of corporate bankruptcies, and that will increase. In the bankruptcy restructuring, the workforces will likely be cut. So returning to the low, low unemployment that we had may take some time.

Foreclosure – A lot of people think that we will see a wave of foreclosures as homeowners come out of forbearance and cannot bring their mortgages current. 

I disagree. I think loan modifications will be the norm, not foreclosure. It may not play out with all loan servicers that they work with the homeowner to stay in the home and not foreclose, but I really think it will for most. 

Final note: There is a lot more that can be said about these topics, for sure. 

Some economists are saying housing will be steady because of pent up demand. I think we will see that in June. I really think we will all have our busiest June in our real estate memories. Meaning, July – October closings will be brisk. I, personally, cannot wait. Fun times. And if you are considering buying, I would love to help with your mortgage.

At the same time, I just read a short book by Harry Dent, an economist that has been right more times than wrong, and he does not have a good long term outlook for housing at all. And, he has some interesting and compelling data as to why that may be.

This opinion is offset by this article: Look for Housing to Rescue the Economy. And I agree with that as well.

Short to Mid-term, at least, I think we will see housing stay very strong, except things are tighter for the lower credit score buyers. We may need more credit repair than ever before. Not a bad thing.

And, I borrow this from a financial newsletter that I subscribe to:

I am proud of our country and its citizens. Although we are beginning to see protests, I believe we have all done an amazing job staying positive. Our worst in the US is better than the best in many many places around the world. The market must cleanse itself. The smart will protect themselves and those that do not will find a way to get through this because that is what we do.

I have been broke and there is no better place in the world to go from rags to riches. You need only one thing and that is a burning desire to come back. Such desire plows down all obstacles.”

Agreed. Wholeheartedly. We may be going into Winter, but Spring will follow and we will do and see great things.

About The Author

For years, 18 as of this writing, I have walked beside average men and women of all ages on a specific journey. The journey of home ownership.
And what I have discovered in opening up the financial reality of thousands of individuals & couples is a constant mix if fear, hope, confusion and achievement. It really is an exhilarating journey!
And I have read innumerable books on personal finance, read the blogs and listened to the podcasts, and spoken to the experts. And there always seems to be a bit of a disconnect between the theory of ‘personal finance’ and the lived reality of what is, truly, personal finance.

This is a place where real life meets real money. I hope you will come along on the journey to explore Finance, on the Front Line.


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