V#&WUA
– no, I’m not beeping something out.
These days, it seems those symbols are all the economic recovery scenarios that are possible as the U.S. looks to recover from the pandemic that has gripped our nation in 2020.
For the housing market, that recovery could look different from the larger economy. In the Spring of of 2020, as stay-at-home orders spread across the U.S. and many businesses began to close, the housing market proved to be incredibly resilient, thriving amid record low interest rates and high consumer demand.
Experts pointed out that while the housing market created the Great Recession of 2008, this time, housing was in the unique position to pull the economy through the pandemic-induced recession.
TransUnion, the Mortgage Bankers Association, Black Knight and many other companies released data at the end of the summer showing that mortgage delinquency rates were slowing down.
After jobless claims skyrocketed to more than 30 million at the start of COVID-19, many Americans took advantage of forbearance opportunities to survive the economic hardships brought on by the pandemic and the stay-at-home orders that followed.
By the end of March, mortgages in forbearance had jumped 1,396% in just one month.
But the data at the end of the summer was encouraging, showing fewer Americans with a mortgage in forbearance and a decline in delinquencies.
Economists such as White House Economic Advisor Larry Kudlow continue to argue we will see a V-shaped recovery in the U.S. and the worst is already behind us. But some housing experts warn there is a possible foreclosure crisis on the horizon, and have doubled down in their business lines as they prepare for this rise.
ATTOM Data Solutions’ RealtyTrac, a foreclosure listings and search portal, added industry veteran Rick Sharga back into its ranks in early August in a move that foreshadows what the company sees for its future. Sharga will oversee RealtyTrac’s marketing and public relations initiatives and implement new marketing strategies to increase brand awareness.
Foreclosures declined to record lows in recent years, but RealtyTrac sees the potential for increased foreclosure activity due to the pandemic. Sharga isn’t new to the company, having laid the foundation for its internal and external communications program for eight years in the early 2000s. But the announcement of his return is a true sign of the times.
“[Sharga] now returns at a pivotal moment, as RealtyTrac once again positions itself as the premier foreclosure listings and search portal,” the company said in its release. “In this role, Sharga will be responsible for developing and executing a strategic marketing plan to optimize growth and drive business development.”
In the release, RealtyTrac General Manager Ohan Antebian also talked about ATTOM’s vote of confidence and strategic decision to re-invest in the foreclosure site, saying it will solidify awareness of the organization and its near-term modernization.
“While currently the majority of banks are providing deferments for homeowners, many forecast that we will see a rise in the number of foreclosures when these provisions expire,” the company’s website states. “As a result, now is the right time to keep an eye on the foreclosure and real estate market trends.”
In August, Sharga wrote a piece for HousingWire titled “The case against a foreclosure tsunami,” saying COVID-19 has disrupted the normal progression of a recession. In an interview with HousingWire, Sharga doubled down on this position, saying an increase in foreclosures is highly likely, but that it won’t look anything like the crisis that unfolded in 2008 during the Great Recession.
On any given year, an average number of foreclosures is about 1% of all mortgages, Sharga said. Just before the pandemic hit, the number of foreclosures had dropped to just 0.5%. As the foreclosure moratorium comes to an end (it has been extended to the end of 2020 for most mortgages), Sharga expects that number to rise to about 1.5% to 2% at the peak. For comparison, during the Great Recession, about 4% of all homes with a mortgage were in foreclosure.
Is housing on a sugar high?
Another economist, Auction.com Vice President of Market Economics Daren Blomquist, says the housing market is on a “sugar high,” and that high will eventually have to come down.
“The sugar high the housing market is riding will likely begin to wear off after the presidential election in November and even more so when we get a vaccine for COVID-19, which is looking more like it could be as early as the first half of 2021,” Blomquist said. “When prospective buyers regain some certainty and confidence in the world around them, the frenzied, almost panicked, buying we’ve been seeing over the past few months should start to subside.
“Corresponding somewhat to the drop-off in demand will be a ramping up of supply: single family housing units started by homebuilders back in late 2019 and early 2020 — some may forget single-family housing starts increased to a more than 12-year high in December 2019 and nearly reached that same level again in February 2020 — and distressed sales starting to flow into the market, assuming the foreclosure moratoria are lifted and the forbearance programs end on schedule,” he continued.
In March, Fannie Mae, Freddie Mac and the U.S. Department of Housing and Urban Development suspended all foreclosures and evictions for 60 days to ensure that people didn’t lose their homes as the coronavirus was shutting down the U.S. economy. That date has since been pushed back several times as the effects of the economic shutdown continue to linger.
But because the date continues to move back, it is unclear at what point foreclosures might begin to increase, possibly creating a marginal spread. Sharga pointed out that factors such as individual states’ moratoriums and judicial proceedings could keep foreclosures from hitting the market all at once.
Each state differs in foreclosure requirements, but they generally fit into two categories: judicial and non-judicial foreclosures. The timelines for foreclosure filings in judicial states are much more lengthy than their non-judicial counterparts. For example, as of the third quarter of 2019, timelines for homes foreclosed in the judicial states of Indiana, Hawaii and Nevada were all more than 1,500 days, or more than five years.
Comparatively, foreclosure timelines in judicial states can be completed in a matter of months, such as 201 days in Virginia, 217 days in Montana or 229 days in Mississippi. Because of these vast differences, Sharga said that the timeline for foreclosures as a result of the pandemic is difficult to predict.
“It may not feel as bad as the last crisis nationally, because it could happen in stages,” Sharga said.
Blomquist agreed there will be an uptick in foreclosures, but it will not look the same as what the market saw at its peak in 2010.
“Our foreclosure forecast model does predict a rise in foreclosure volume over the next few years, but not exceeding even 2019 levels until 2022 and peaking at 39% below the Great Recession peak in 2010. We define foreclosure volume as properties that complete the foreclosure process by either selling to a third-party buyer or reverting to the foreclosing lender at foreclosure auction.”
-Daren Blomquist
On a HousingWire podcast, EasyKnock Cofounder and CEO Jarred Kessler said the housing market is strong for now as homebuyer demand is going up, however, he said the damage to the economy will cause that demand to trickle off.
“I think [homebuyer demand] can continue to go up in the short term, but I just don’t think it’s sustainable,” Kessler said. “There’s too much damage in the economy in the underbelly right now, to where I believe it will eventually trickle into the real estate market.
“I definitely think there’s going to be a dip. I think it’s going to happen in the later part of the year and it’s going to continue for a few years…You can’t have an economy this damaged right now without having an effect to the housing market. Eventually it’s going to make its way through and you’re going to see a little bit of a panic in the market and you’re going to see inventory open up.”
-Jared Kessler
Sharga, however, said he is cautiously optimistic about the rest of this year, but said he is still waiting to see if the strong housing demand is simply pent-up demand that was not spent during the spring homebuying season, or if it will be sustainable for the rest of 2020.
“March was actually off to a great start before the shelter-in-place orders,” Sharga recalled. “And then we saw April, May and June numbers fall pretty significantly. I’m wondering if July August and September are going to be this year’s April, May and June…the answer to that question will go a long way to your question about the economy. If we continue to see that type of sustained buying demand, I think I think it bodes well for the overall economy.”
Sharga expects the growth to continue, saying strong demographic factors outside of the pandemic will also help the increasing homebuyer demand.
“The biggest cohort of Millennials right now is between 31 and 32,” he said. “So, they are rapidly approaching that prime home-buying age. That’s millions and millions of prospective homebuyers and that will have a material effect. Anecdotally, we’re also seeing an acceleration of Millennials transforming from urban renters to suburban homeowners. And I think the pandemic has certainly accelerated that trend.”
At the heart of the matter is the COVID-19 pandemic, which has brought unprecedented changes to the housing market and the economy overall. And if there’s one thing economists agree on, it is that the pandemic makes any kind of economic forecasting difficult.
“The real variable here, as any economist will tell you, is what happens with the virus,” Sharga said. “Are we able to push out a vaccine at scale in the next few months? Will there be other medical treatments that come out that can mitigate the threat? Because until we know that, it’s hard to predict when businesses will not only be able to reopen but when people will feel safe enough to go participate.”
In a separate interview, Ralph McLaughlin, chief economist and senior vice president of analytics at Haus, agreed, saying:
“No housing analyst alive has seen the housing market perform during a pandemic.”
-Ralph McLaughlin
McLaughlin noted that in this economic downturn, policy plays a much larger role in what’s going to happen with the health of the housing market than fundamental economics.
And even websites like RealtyTrac aren’t putting all their eggs in one basket: The company is not just looking at the foreclosure market as it plans its expansion. With Sharga at the helm, it is also exploring other areas where it could branch out, even other areas of real estate investment, including some small multifamily properties.
“There are other types of properties besides foreclosures that represent good investments, whether those are properties that are currently listed on the MLS or digging into public record data to take a look at properties that might represent an untapped investment opportunity,” Sharga said.
“Maybe even including sort of the low-dollar commercial assets that most of the commercial websites kind of ignored because everybody wants the $20 million office building, but not necessarily that gas station in Akron, Ohio.
“We’re still formulating those plans,” Sharga continued. “But the reality is that the majority of investments that people make in real estate are not foreclosures. And I think we have an opportunity because of the wealth of data that our parent company, ATTOM Data has, to be able to put together a really comprehensive web platform that lets investors find those bigger deals.”
The road to economic recovery
For now, the latest data from Black Knight is already beginning to show increased delinquency rates. The number of seriously delinquent mortgages, meaning payments overdue by 90 days or more, soared to a 10-year high during July in a tally that counts forbearances.
There were 2.25 million home loans that were seriously delinquent that month as borrowers took advantage of a provision of the CARES Act that allows people impacted by COVID-19 to suspend payments for up to a year, according to a Black Knight report.
“Serious delinquencies were up 20% from June and are now the highest they’ve been since early 2010,” Black Knight said. “In total, serious delinquencies are now 1.8 million over pre-pandemic levels.”
And the latest discussions about new benefits in Congress have not been promising. Unable to come to an agreement and unwilling to forgo their summer vacation plans, Congress allowed the CARES Act, and therefore eviction moratoriums, to expire in July. This also ended extra unemployment benefits and other economic boosts to help Americans during the government-imposed shutdown in many states.
In August, President Donald Trump signed an executive order and three memorandums aimed at providing relief to Americans suffering from the economic fallout of the COVID-19 pandemic.
One memorandum deferred through the end of the year, for employees making less than about $100,000 a year, the payroll taxes that are used to fund Social Security and Medicare – but it doesn’t cancel the taxes. He also provided an extra $400 a week for people receiving unemployment benefits and instructed federal departments to consider and review ways to keep renters in their homes through existing government programs.
“Although the foundation of the U.S. housing market is strong, grounded in solid long-term fundamentals, some of the gauzy housing numbers of the last few months are more flimsily built on shorter-term demand stimulants — fear caused by the virus and the allure of falling mortgage rates — along with shorter-term restriction of supply — homeowners gun-shy about listing in a volatile economy, and distressed supply held back by foreclosure moratoria and forbearance programs,” Blomquist said.
The COVID-19 pandemic is bringing unprecedented changes to U.S. homeowners, renters, small business owners and even some large businesses are struggling with no clear vision as to what turn the economy will take next due to, as McLaughlin stated, the role policy plays in the overall health of the economy.
Experts continue to look at the economy with a trained eye and analyze the trends, but predicting the direction of the market during an unprecedented pandemic could prove impossible.
To read the full Oct/Nov issue of HousingWire Magazine, click here.
