It's everything you hear on the news, everything you read in the papers and everything you see on social media. O coronavirus is everywhere, and it's safe to say that everyone is scared, both of the disease itself and of the possible economic implications of the whole country going into temporary quarantine.
Reflections of the 2008 US housing market crisis have many people imagining doomsday scenarios and assuming the worst-case scenario for 2020.
But in a recent article published by USA Today Gus Faucher, chief economist at PNC Financial Services Group, said: "A recession is not inevitable. If we do have a recession, it's likely to be brief and much less severe than the Great Recession. "
Faucher notes that the financial crisis and recession of 2008 were the result of years of deep-rooted economic insecurity, which is not the case now.
[mpc_quote preset="preset_0″ layout="style_4″ author_font_preset="mpc_preset_38″ author_font_color="#5555″ author_font_size="16″ author_font_transform="uppercase" author_font_align="left" author="Gus Faucher" quote_font_preset="mpc_preset_1″ quote_font_color="#888888″ quote_font_size="18″ quote_font_line_height="1.5″ quote_font_align="left" icon="eti eti_quotations" icon_color="#efefef" icon_size="100″ icon_opacity="100″ border_divider="true" border_css="border-top:0px;border-right:0px;border-bottom:0px;border-left:10px;border-color:#2e00ff;border-style:solid;" padding_divider="true" padding_css="padding-top:20px;padding-right:40px;padding-bottom:20px;padding-left:40px;" mpc_ribbon__disable="true"]What we are seeing is caused by something external to the economy.[/mpc_quote]
There are important differences today that mean good things for the American real estate market, despite recent events. Let's take a look at some of the main indicators that we will avoid a crash in the real estate market.
1. The stock is low.
In an article by Forbes predicted a historically low level of housing stock in 2020. According to NAR (National Association of Realtors) statistics, there is a chronic shortage of 300,000 to 400,000 housing units per year in the United States.
Bryan Souza, a real estate agent from Fresno, California, who worked during the 2008 recession, says that there is a fundamental difference between that market in the 2008 crisis and today.
"Back then, we had 18 months of real estate inventory ... it was a buyer's market," said Souza. Today, in our local metropolitan area, and indeed across the country, we're looking at two to three months of inventory. And so, it's a seller's market. "
Even when markets change, buyer demand remains. Even if some buyers initially postpone their purchases out of fear, when that fear subsides, most buyers will still want to buy - and that pent-up demand will turn into sales.
2. Mortgage rates are low.
Mortgage rates have been below 4% (for Americans) for some time and should remain low. These low rates will encourage more people to buy, even if they are deterred by the initial fears caused by the virus.
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3. Subprime loans have fallen.
The 2008 crisis was triggered when banks and other lenders approved an overabundance of mortgages for unqualified buyers, pushing house prices to very high levels. When house prices began to fall, millions of Americans stopped making mortgage payments and lost their homes, and banks were pushed to the brink of bankruptcy.
At that time, household debt rose to a record 134% of gross domestic product. Today, household debt is a historically low 96% of GDP. Today, households are saving around 8% of their income, compared to just 3% in 2008.
According to data from the Federal Reserve Bank of New York and the Equifax Consumer Credit Panel for the third quarter of 2001 to the end of 2008an average of 20% of all mortgages originated for people with subprime credit scores (less than 660) . In the third quarter of 2018, subprime borrowers received only 9% of all mortgages.
[mpc_alert preset="mpc_preset_20″ icon="fa fa-dollar" icon_color="#88d282″ icon_size="28″ icon_background_color="#f3f3″ icon_border_divider="true" icon_border_css="border-top:0px;border-right:0px;border-bottom:3px;border-left:0px;border-color:#88d282;border-style:solid;border-radius:0px;" icon_padding_divider="true" icon_padding_css="padding-top:25px;padding-right:25px;padding-bottom:25px;padding-left:25px;" font_preset="mpc_preset_13″ font_color="#5555″ font_size="18″ font_transform="uppercase" font_align="left" content_border_divider="true" content_border_css="border-top:0px;border-right:0px;border-bottom:3px;border-left:0px;border-color:#88d282;border-style:solid;border-radius:0px;" content_padding_divider="true" content_padding_css="padding-top:25px;padding-right:25px;padding-bottom:25px;padding-left:25px;" background_color="#f7f7″ border_css="border-width:0px;border-radius:0px;" padding_divider="true" margin_divider="true"]All of this means that more Americans are better equipped to deal with a temporary economic disruption that won't significantly affect their ability to buy homes or hold onto their current homes.[/mpc_alert]
4. Today's homeowners have more equity in their homes.
According to a report by the Federal Reserve called Flow of Funds, the Americans owned US $ 18.7 trillion in their homes, giving them an equity stake of 64% . In comparison, this figure was only 52.7% in the first quarter of 2007. This means that the vast majority of homeowners will have no problem keeping their homes during these periods of uncertainty.
5. The government is offering a moratorium on foreclosures for 60 days - which will probably be extended for up to 12 months.
In light of the current situation, the Department of Housing and Urban Development (HUD) announced that all single family homeowners with mortgages backed by the Federal Housing Administration would be protected from foreclosure or eviction until mid-May.
The Federal Housing Finance Agency has ordered Fannie Mae and Freddie Mac to suspend all foreclosures for "at least 60 days". The FHFA also offered compensation to homeowners affected by COVID-19, allowing them to suspend their mortgage payments for up to 12 months.
These measures should instill confidence in home sellers and give them the opportunity to sell their homes during the extension.
6. House prices appreciated during previous recessions.
Not every recession signals a downturn in the real estate market. Indeed, house prices have risen in three of the last five recessions (1980, 1981, 2001) e remained practically unchanged at a (they fell by 1.9% in the 1991 recession). They only fell significantly in 2008.
It is worth remembering that in 2008 the recession was 100% related to the real estate market, i.e. of the five recessions, the only one that showed a reduction in prices was the only recession that happened because of the real estate market.
According to Zillow, annual home value appreciation in all states since 1997 has averaged 4.6% during periods of economic growth and 4% during recessions.
[mpc_alert icon="eti eti_globe_alt" icon_color="#f8bf4d" icon_size="28″ icon_background_color="#f3f3f3″ icon_border_divider="true" icon_border_css="border-top:0px;border-right:0px;border-bottom:0px;border-left:0px;border-color:#f8bf4d;border-style:solid;border-radius:0px;" icon_padding_divider="true" icon_padding_css="padding-top:25px;padding-right:25px;padding-bottom:25px;padding-left:25px;" font_color="#5555″ font_size="18″ font_transform="uppercase" font_align="left" content_border_divider="true" content_border_css="border-top:0px;border-right:0px;border-bottom:0px;border-left:0px;border-color:#88d282;border-style:solid;border-radius:0px;" content_padding_divider="true" content_padding_css="padding-top:25px;padding-right:25px;padding-bottom:25px;padding-left:25px;" background_color="#f7f7″ border_divider="true" border_css="border-top:5px;border-right:0px;border-bottom:0px;border-left:0px;border-color:#f8bf4d;border-style:double;border-radius:0px;" padding_divider="true" margin_divider="true" margin_css="margin-bottom:30px;" mpc_ribbon__border_divider="true" mpc_ribbon__padding_divider="true" mpc_ribbon__margin_divider="true"]Today's market conditions are much more similar to those of 2001, after September 11.[/mpc_alert]
7. People always need a place to live.
More than ever, people understand the value of having a roof over their heads. In uncertain times, home ownership is a security that people are proud of and work for. Real estate is above all a human industry, and human beings crave the stability of home ownership.
8. Nobody knows how long this will last.
Fear is at an all-time high at the moment. There is so much uncertainty about how this virus will affect people in the United States that people are assuming the worst.
If a viable cure is found in the next few weeks and launched, this pandemic could be a much shorter problem than initially anticipated. Now is not the time to panic and stop doing what works and makes sense.
Stick to what's working, adapt to change and you'll stand out.
I have other questions! Who should I talk to?
In all these cases, The Florida Lounge can help you understand the impacts of events like this on the real estate market in Florida! Our relationship agents have expertise in real estate investment for Brazilians in the state of Florida and can accompany the entire process of acquiring your dream home, assisting with visa issues, bank accounts, remittances and much more. [/mpc_textblock][mpc_button mpc_tooltip__text="SW52aXN0YSUyMG5vJTIwc2VjdG9yJTBBaW1vYmlsaWFyaW8lMjBuYSUyMEZsb3JpZGE="]Did you like the article? Keep an eye on our blog! Looking to live or invest in real estate in Florida? See the list of houses for sale in Florida we've selected for you!
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