5 Major COVID Effects After One YearReturn to Blog
It was one year ago that the World Health Organization declared COVID-19 a pandemic and changed the world. Here are some of COVID’s profound effects on the Real Estate and Mortgage Industries:
1. Interest Rates:
Even though rates have increased about 1/2% over the last few months, they remain about 3/8% LOWER than where they were last year at this time on average. That is because rates dropped about 1% in response to the COVID crisis, and the Government’s intervention before started to climb.
2. COVID Overlays (More Restrictive Lending):
Overlays are additional guidelines that lenders impose over and above standard lending guidelines, and some of the COVID overlays are particularly strict. That is especially the case with self-employed borrowers, as lenders want to ensure they are still making similar amounts of money in our post-COVID economy.
As a result, many lenders have imposed much tighter debt ratio requirements for self-employed borrowers along with qualifications that prove they are still in business and generating revenues. We have seen borrowers with very high 2020 incomes not qualify for mortgages this year because they have not generated revenues or income yet,
2.7 million mortgages were in forbearance at the end of 2020, scaring the bejeebers out of many market analysts who feared that these would turn into foreclosures that would flood the market with inventory. As a reminder, forbearance is a gov’t mandate that allows borrowers in hardship to stop making payments on their mortgages without risk to their credit.
According to many analysts, like Barry Habib, forbearance concerns are overblown for the following reasons:
- Didn’t Need It: Many borrowers went into forbearance as a precaution but did not need to, so they can start making payments again with ease;
- Equity: Most borrowers have substantial equity in their properties, in sharp contrast to 2009, and will do whatever they need to preserve it (so they won’t let their houses go to foreclosure);
- Friendly Repayment Terms: Forbearance repayment rules are very friendly, as there will be no interest or payments due and borrowers only have to repay past-due balances when they refinance or sell; and
- Easy To Sell: The hot market makes it very easy for borrowers in authentic hardship situations to sell without letting the house go to foreclosure.
4. Remote Work Makes the World More Competitive:
That is a factor that most of us missed in the mortgage and real estate worlds because our markets have been so hot over the last year. But, when things cool down even a little, the world will get far more competitive. That is because businesses have figured out how to cut costs with remote work, and consumers are now much more willing to engage remotely.
Businesses have learned to cut costs by eliminating office space and accessing far cheaper remote labor markets either overseas or in middle America. That allows them to offer lower rates, prices, and commissions. It is also much easier to open up a business when clients and employees are willing and able to work or engage remotely, so I expect everything to get far more competitive over the next few years in the real estate and mortgage industries.
5. Much Hotter Housing Market:
That is something nobody saw coming last year when COVID concerns surfaced, specifically when the Government imposed lockdowns. Here are several reasons why the housing market got way hotter than anyone expected:
- Lower Rates: Falling interest rates made housing more affordable and attractive and thus spurred demand.
- Higher Asset Prices/Flood of Money: Very low-interest rates, quantitative easing, and lots of Fed money creation (in any form) usually push up asset prices. For example stocks, and make the homebuying population feel flush with cash and more willing to buy.
- Unemployment Hit Renters: Over 20 million people lost their jobs due to the COVID crisis, and 10 million of those people remain unemployed. That is extremely serious and very sad, but it did not affect the housing market in the way that many feared because it hit non-homebuying demographics much harder. Many potential homebuyers did better in 2020. Examples include those of us in the real estate, title, appraisal, and mortgage industries, along with many tech workers.
- Lower Inventory: COVID stopped many developers from building for months, further exacerbating inventory shortages and the supply/demand imbalance.
- Demographic Demand: There is a surge of millennials hitting the homebuying age, impacting the supply/demand imbalance.
If you have questions about any of these COVID effects on the Real Estate and Mortgage industries, schedule a call with Darryl Glass today to discuss possible resources for your current situation.